The decision by the Monetary Policy Committee (MPC) of the Reserve Bank not to raise interest rates again has provided a candidate for “good news item of the year”.
Together with the pronounced decline in the rate of both consumer and producer inflation, this was most welcome news for millions of indebted South Africans, although the current prime overdraft rate is still at its highest level in 15 years. With a bit of luck and a further drop in inflation over the next two months, rate cuts could occur before year-end.
The drop in the consumer price index (CPI) from its peak of 7.8% in July last year to the current rate of 5.4% has been rather predictable and is premised on four key fortuitous developments over the past 12 months.
It is quite clear that the factors listed above have been primarily responsible for the escalation of inflation during 2022. The reversal of their upward trends was always on the cards and is now gathering momentum. Hopefully, the rate hiking cycle of the Monetary Policy Committee will now come to an end
South Africa’s factories have long since shrugged off the effects of the Covid pandemic and have entered a relentless new phase of expansion, with a new record sales performance for the first five months of the year – in real terms. It is also encouraging that the volumes of manufacturing production have now also started to move into growth territory.
May 2023 was the second month in succession that total manufacturing volumes expanded. In May, nominal year-on-year growth in manufacturing sales outperformed the consumer price index (CPI) for the 12th month in succession, with an average growth rate for the 12 months ended May 2023 of 13% - more than double the latest CPI reading.
Although the Altron-FinTech Household Resilience Index (AFHRI) for the first quarter of 2023 has predictably taken a slight dip as a result of financial pressures faced by South African households, the index also contains some exceptionally good news on the continued resilience of several key indicators.
One of the shining starts in the ensemble of 20 indicators comprising the AFHRI is the new all-time record for total household disposable income, which also serves as one explanation for South Africa’s ability to avert a recession in the first quarter of the year.
This key economic indicator is on course to hit the R1.1 trillion quarterly level before the end of 2023.
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