S Africa inflation and retail sales: steady now

A bit more positive economic data from South Africa, after a mixed bag on manufacturing and mining last week.

Retail sales in February rose 3.8 per cent year on year, up from January’s revised 2.2 per cent increase – beating analysts’ expectations. And South Africa’s statistics bureau said inflation held steady at 5.9 per cent in the year to March – just a whisker below the top end of the government’s 3 to 6 per cent target range.

The bureau said consumer prices rose 1.2 per cent during the month, up from 1 per cent in February. As the graph shows, the rate of inflation has been trending upwards since the middle of last year, so the unchanged annual rate in March will come as a relief.

Transport was the biggest driver of prices in the month, contributing 0.4 percentage points to the monthly number and 1.2 points to the annual one, largely caused by an 81 cent increase in the price of a litre of petrol in March.

The weaker rand has contributed to inflation, too. It has weakened to more than R9 to the US dollar, raising the cost of imported goods. But analysts were generally positive, saying the central bank was unlikely to react with any hike in interest rates given that the CPI figure is inside the target range.

Shilan Shah of Capital Economics noted that inflation could yet spike above 6 per cent this year, due to the weaker rand and higher wage settlements, but that this should prove temporary:

Looking further ahead, inflation should begin to fall back in Q3. For one thing, the prices of most agricultural commodities have fallen sharply since the beginning of 2013. The lag between changes in global food prices (as proxied by the S&P agriculture and livestock index) and South African food inflation means the recent fall in prices should begin to feed through later on this year. Meanwhile, the sharp fall in the price of brent crude oil since the start of February (from $118pb to a fraction under $100pb) means that there is a significant chance of the increase in petrol prices in March being reversed soon.

Shah told beyondbrics the encouraging retail sales should be supported by a tail off in inflation later in the year: “Although inflation may increase in the near term, a fall back should provide a further boost [to consumers] as real incomes are supported.”

The highest growth rates in retail sales were for clothing and footwear, up 14.3 per cent year on year, while furniture and appliances were down 7 per cent.

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