Politics & Property News Blog

The decline in the consumer price index (CPI) from 5.6% in February to 5.3% in March is most welcome and was rather predictable, due to the steep and persistent drop in the food price index. 

When analysing the CPI data over the past 18 months, it is clear that the rate of increase for food and beverages is in structural decline, following the trend of lower global freight shipping charges and more stable fuel prices, with a stronger (albeit volatile) domestic currency also playing its part.

In combination, food and beverages comprise more than 21% of the weighting of the CPI basket and any further downward movement will almost certainly serve to pull back the overall CPI again. 

The food & beverages price index is now comfortably within the Reserve Bank’s target range for inflation and a further moderation of inflationary trends should continue in 2024. 

This will be exceptionally good news for indebted consumers and should eventually lead to lower interest rates.

1st quarter surplus for trade balance

After a disappointing start to 2024, South Africa’s exports surged by more than 12% to R161 billion in February and increased again marginally in March. At a total of almost R470 billion, total exports for the 1st quarter of the year were sufficient to record a cumulative trade balance of R11 billion, compared to a deficit of more than R5 billion for the first three months of 2023. 

The trade section for minerals, which includes iron ore and coal, remained solidly in the number one position as the largest contributor to foreign exchange earnings, followed by precious metals and agriculture & food. 

Vehicles & spares came in at number four, but in terms of year-on-year growth this key section outperformed the rest of the top-ten by a huge margin. Any surplus on the country’s trade account is most welcome, due to its stabilising effect on the rand exchange rate, which could assist the quest to lower inflationary pressures in the economy.

Absa manufacturing PMI starts Q2 on high note

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) for manufacturing improved to 54 in April, following a dip to 49.2 – below the neutral 50-point mark – in March. The rebound has been attributed mainly to improved business activity, while better domestic demand also filtered through to higher new sales orders.

In line with sentiments expressed by business chambers, the absence of loadshedding for a full month has likely played a key role in the renewed optimism over sustained business activity. According to Absa, the latest survey results reflect a good start to the second quarter of the year. 

The business activity index improved to 57.2 points from 44.5 in March, and new sales orders rose to 55.6 points in April, compared with 45.5 in March.

Improvement in household financial resilience 

The latest reading of the Altron FinTech Household Resilience Index (AFHRI) shows that the slump in the aggregate financial disposition of South African households (induced by high interest rates) has bottomed out and may be generating some upward momentum. 

Although debt servicing costs as percentage of household incomes has risen to 9% since the Reserve Bank’s decision to follow a restrictive monetary policy approach, higher employment and salary levels have boosted the AFHRI. 

Any lowering of the prime rate (via the repo rate) is bound to lead to a further improvement in the overall financial resilience of households.