During October, the annualised rate of consumer inflation rose marginally to 5.9% (from 5.4% in September), but there should be no need for alarm over any further significant increases in the general price level. It should be noted that October was a difficult month for the rand/US dollar exchange rate, with the average hitting a level of marginally above R19.
November’s inflation print should already benefit from the strengthening of the exchange rate by more than 3% during the first three weeks of the month, namely to a level of R18.45. A stronger rand (on the back of a slump in the US dollar) invariably has a profoundly positive impact on price stability and this effect could become visible as early as November.
A second reason to be optimistic over the chances of the Consumer Price Index (CPI) returning soon to the mid-point of the Reserve Bank’s target range for inflation, is the welcome decline in the oil price. Since the end of October, the price of Brent crude oil has averaged just above $81 – a decline of 7%.
This fortuitous combination of a stronger currency and a lower oil price has already led to lower fuel prices and a further drop in the prices of petrol and diesel are on the cards in December. The Monetary Policy Committee of the Reserve Bank seems to have taken these factors into consideration, with the benchmark repo rate unchanged at 8.25%.
Prior to the reading of the annual mini-budget by the Minister of Finance early in November, speculation was rife over mounting fiscal problems. Fortunately, however, the prophets of doom have once again been proven wrong. The acid test for the evaluation of the mini-budget lies in capital market reaction, especially the exchange rate and the long-term bond yield.
The budget team at National Treasury are probably still in a celebratory mood, as the news is encouraging: the rand recovered from R19.09 a week before the budget to an average of R18.47 in November – an improvement of 3%, whilst the yield on 10-year bonds has dropped by 90 basis points since the beginning of October.
An important issue that has been overlooked in earlier media commentary is the fact that SA Revenue Services can look forward to bumper months in November and December, when a combination of high consumer spending during Black Friday, Cyber Monday and the Christmas holidays guarantees high VAT receipts. Furthermore, South Africa’s public debt/GDP ratio remains just above 70%, which is low when compared to most of our key trading partners.
Following the predictable sharp decline in total employment as a result of the Covid lockdowns and a subsequent dip after the July 2021 riots in KwaZulu/Natal, total employment has finally recovered to the same level as before the pandemic, with almost 400,000 jobs having been created in the 3rd quarter of 2023.
The sectors that have been the key drivers of new job creation over the year ended September 2023 are (number of jobs in parentheses):
• Finance & business services (456,000)
• Community & social services (235,000)
• Trade & hospitality (145,000)
• Construction (134,000)
• Agriculture (83,000)
The sustained increase in job creation since last year is most welcome news for SA Revenue Services, which may still be able to get close to the budgeted revenue for the 2023/24 fiscal year.
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