STANLIB Podcasts

Both producer and consumer inflation in China in January were again negative: producer inflation was -2.5% (the 16th month it has been negative) and consumer inflation was -0.8% (the 4th negative month). This is largely due to falling food prices, and is seasonal, but clearly the Chinese economy is weak, and there is negative sentiment about its property sector. In SA, data on both international flights and foreign visitor stays are very encouraging, especially for Cape Town. Clearly this is also partly seasonal and event-driven, but clearly tourism is recovering from Covid-19 and reflects a positive area of the economy.

The US Fed is no longer warning of a risk that interest rates might rise further but is clearly not yet comfortable enough about inflation trends to cut. It may wait for inflation to fall sustainably below 3%. In SA, while consumers are under pressure from rising interest rates and shrinking disposable incomes, they do not appear to be as reliant on credit as in the past: household credit growth is slower than inflation, due to tightening bank lending.

US Q4 2023 GDP data, in combination with latest core PCE data for December, shows that the economy continues to grow while inflation is falling, which is good news. In response, US equity markets rose strongly. In SA, the annual rate of inflation has dropped to 5.1%. That probably suggests to the South African Reserve Bank that high interest rates are having the desired effect, but it is likely to follow the trend set by global central banks in the timing of rate cuts.

Recent US consumer data is compellingly strong, as reflected in December retail sales and weekly jobless claims, making it likely that the US is heading for a “soft landing”. While inflation remains above target, the Fed is likely to remain cautious in the short term about cutting interest rates. In SA, latest retail sales data is disappointing, reflecting declining household incomes. As inflation is largely under control, the SARB is likely to keep rates unchanged in the short term but may begin rate cuts in May.

A broad range of US labour market data released last week was compellingly strong, with the unemployment rate moving down to 3.7%. However, those sectors that are more sensitive to interest rates, e.g. retail, manufacturing and technology, are adding fewer jobs, showing the economy is slowing. In SA, Q3 GDP declined by 0.2% and the same binding constraints (load shedding and logistics constraints) are likely to persist into Q4 and Q1 2024, pushing the economy into technical recession.

In this podcast, STANLIB Chief Economist Kevin Lings discusses US PCE inflation for October and SA’s private sector demand for credit. Although US PCE inflation, at 3%, remains above the target of 2%, the data is moving in the right direction. However, shelter inflation needs to fall further. In SA, demand for credit in October softened to 3.9%, partly because of slow growth in mortgages, but it is a matter of concern that credit card demand is growing by 9%.

In this podcast, STANLIB Chief Economist Kevin Lings discusses SA’s October CPI data, which surprised on the upside, rising to 5.9% year-on-year. He notes, though, that core inflation is still relatively well contained, at 4.4% y/y (from 4.5% in September). He also discusses the South African Reserve Bank (SARB)’s decision to leave interest rates unchanged at 8.25%. The SARB would probably like to keep rates unchanged into mid-2024 and then cut into 2025, but it has highlighted upside risks to inflation.

In this podcast, STANLIB Chief Economist Kevin Lings discusses US October CPI inflation data, which delivered a pleasant surprise, moderating from 3.7% to 3.2% y/y. This will give space to the US Federal Reserve not to increase rates any further, and it had a positive impact on markets. Turning to SA, Kevin discusses the fourth consecutive monthly increase in retail sales, which will support Q3 GDP growth, although underlying trends are concerning. He also analyses S&P’s decision to keep SA’s credit rating unchanged with a stable outlook, despite the deterioration in the fiscal parameters reflected in the recent MTBPS.

In Q3, SA’s two most productive sectors, mining and manufacturing, remained under pressure. Manufacturing fell -1.2% and mining by -1.6%. If Q3 consumer spending also turns negative, overall GDP for the quarter will decline, and this weakness could persist into the first half of 2024. A cut in interest rates and reduction in load shedding could help to stimulate the economy. This year, businesses have registered about 317 rooftop solar projects with Nersa, which, with residential rooftop solar investment, should help to address Eskom’s supply shortages next year.

SA’s Medium-Term Budget Policy Statement (MTBPS), released last week, showed a tax revenue shortfall of about R56 billion, as expected. It also showed government overspending of about R29 billion, which will be clawed back through cuts in departmental and provincial budgets. Fiscal discipline and stronger economic growth will be needed to improve government finances. In the US, unemployment has ticked higher and wage growth has edged lower, easing concerns over the need for higher interest rates to curb inflationary pressures and lifting market sentiment.