19 Dec.
Absa: SA Morning Sheet.
This is a daily economic comment …
The sheets can be downloaded daily from Absa Economic Research
An extract from Friday’s sheet is provided as an example:
Please note that this will be the last South Africa Morning Sheet for 2011, publication will resume in early January.
Headline CPI inflation rose to a lower-than-expected 6.1% y/y in November from 6.0% in October. We looked for inflation to accelerate to 6.3% y/y. On a m/m basis, the CPI increased 0.3%.
Food inflation rose slightly in November (to 11.1% y/y from 11.0% y/y). Anecdotal price evidence in food retail stores suggests that further upside is likely to CPI food in December. We expect food inflation to continue its upward trajectory to a peak of 15.0% y/y in Q2 12. While food inflation was largely in line with what we expected, the surprise to our forecast stemmed mostly from a lower-than-expected print for transport inflation. While the 23-cent/litre petrol price rise certainly drove private transport operation prices 1.8% m/m higher, prices in the vehicles and public transport categories remained flat, against our expectation for a slight rise.
Underlying inflation pressures rose, as expected. After remaining at 3.8% y/y for the past three months, core inflation increased to 3.9% y/y. Other exclusion measures of inflation also rose higher during the month. We continue to believe resilient consumption growth will push core inflation higher (to 5.5% by end-2012). We expect the CPI to rise through 2012, driven predominantly by food inflation and rising underlying price pressures. The inflation trajectory holds more upside than downside risks in our view (in the form of food prices and ZAR weakness), and we now expect CPI inflation to peak at 6.7% y/y in Q2 12 and remain above the target band until Q2 13.
Producer price inflation figures for South Africa are released today, and we are broadly in line with consensus (cf. 10.6% y/y) in forecasting PPI to have tracked largely sideways rising 10.5% y/y in November (prior: 10.6%). Our forecast translates into a 0.6% m/m increase, which likely continued to be driven largely by commodity prices and a weaker ZAR. We will also continue to keep a close eye on PPI food inflation in order to further assess the risks of these price pressures at the consumer price level.
Market strategy: Concerns about the outlook for the eurozone continue to lead portfolios away from risk, and even growth stories, into safe havens. As a result, equities, commodities and most major emerging market currencies came under further pressure yesterday. The rand and local equity markets were not spared – showing the currency was down 0.8% on the day, and the All Share shed about 1.5%. Turning to today’s data, we expect the release of November producer prices to continue to steer the direction of local fixed income weaker. International data out today are likely to generate more attention are include the euro area PMIs, UK retail sales and US jobless claims. In a light liquidity period as we enter the holiday season we expect global financial markets to remain on a weak bias, with concerns about the euro area debt crisis keeping risk aversion relatively elevated. …
The sheets can be downloaded daily from Absa Economic Research
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