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Brief note intended as a more regular interface with our clients. The emphasis is to provide our interpretation of important economic events, such as South African Reserve Bank interest rate statements, and key data releases, including GDP growth figures.
The April inflation numbers again exceeded expectations – CPIX inflation came in at 10.4% and PPI at 12.4%. Juxtaposing the shocking inflation picture is finally more convincing evidence of the real economy buckling under the pressure from higher inflation and interest rates, electricity outages and a weaker global economy. While the current growth trajectory has been in line with our expectations, the latest inflation numbers have exceeded expectations by a substantial margin, mainly due to international oil prices scaling new and unforeseen highs above $130/b. The rapidly deteriorating inflation outlook (also discounting stiff electricity price increases) has prompted aggressive monetary policy statements. The domestic capital markets are currently pricing in a full percentage point hike in the repo rate at the 11/12 June MPC meeting. The BER has revised its inflation forecast upwards (10.5% in 2008 and 6.8% in 2009) and down scaled its growth forecast in respect of 2008/9 to 3.3% and 3.2% respectively (from 3.4% and 3.8% in April 2008) on the assumption of only a 50 bps hike in interest rates in June.
