Current account shuts the door to further rate cuts

ZA Weekly Outlook

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We forecast a marginal increase in CPI inflation to 5.0% y/y in August from 4.9% y/y in July. Inflation likely reached its trough of 4.9% y/y in July — a month in which we also saw the largest petrol price cut in over three years (-85c/l; -7% m/m). The transport index (w=18.80) is likely to have increased by 2.5% in August, mainly due the 80c/l increase in the price of petrol.
We expect high global grain prices to start filtering into the index of food and non-alcoholic beverage inflation, which is weighted at 15.68% in the CPI basket. We expect some pass-through to CPI food from high maize and wheat prices in Q4:12 and persistence of this pressure in H1:13. Based on our expectation for higher fuel and food prices, we have revised our CPI forecast slightly higher for 2012 and 2013. We now expect CPI to average 5.6% in 2012 (from 5.5%) and 5.4% in 2013 (from 5.2%).
We expect retail sales growth to slow to 7.5% y/y in July from 8.3% y/y in August. We forecast a m/m decline of 0.2% sa in July from 1.9% sa in June, driven by a marginal contraction in textiles, clothing, footwear and leather goods.
Trends in residential building activity in the year to July will likely to continue to underwhelm. We expect growth in residential building to ebb around 0% in H2:12. Feeble building confidence, as well as subdued planning activity, are unlikely to provide stimulus for a change in subdued trends in residential buildings completed.
We expect the SARB to keep rates at 5.00% in its 20 September MPC meeting.
We expect a decline in Stats SA’s Quarterly Employment Survey in Q2:12. Employment in the formal sector increased in Q1:12, notwithstanding slower output growth. However, we expect the drag on the employment numbers to come from the ailing manufacturing and the mining sectors.

Published On Mon, Sep 17 2012, 13:24 GMT Previous entries

Standard Bank Research Team

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