Economic data likely to reflect subdued consumer spending
Subdued consumer spending dynamics are likely to be reflected in both the CPI inflation and retail sales releases this week‚ according to Investec economist Kamilla Kaplan.
CPI inflation is likely to have lifted to 5.1% year on year (y/y) in December from a prior 4.8% y/y‚ she says.
“On this basis CPI inflation will average 4.6% for the year as a whole. In the month of December‚ the main contributions are expected to stem from the housing and the transport categories. Specifically‚ December is a measurement month‚ in which the prices of rentals‚ domestic workers’ wages and transport fares are surveyed.”
Transport inflation‚ Kaplan says‚ has been influenced by the relative changes in the petrol price.
“Heading into 2016‚ annual petrol price inflation is expected to increase‚ mainly on account of the statistical base effects‚ associated with the drop in petrol price in the first quarter of 2015.”
Such statistical base factors will be responsible for much of the breach of the 3 – 6% target range in the first quarter of 2016‚ at 6.1%‚ she believes.
“We expect the inflation rate to moderate thereafter‚ averaging 5.8% for the year.
“International oil prices are expected to remain low with the US Energy Information Administration recently forecasting Brent crude oil at US$40/bbl in 2016.
“A low (and declining) oil price would counter some of the effect of rand depreciation on domestic petrol prices and so alleviate some of the upside price pressures on CPI inflation‚” Kaplan adds.
She says food price inflation at the consumer level will also influence the CPI inflation trajectory in 2016.
“SA may need to import as much as half of its maize consumption requirement as drought conditions persist. These imports would be priced at import parity price levels. To date‚ price increases at the retail level have been relatively contained.”
Kaplan adds that subdued consumer dynamics are expected to be reflected in the retail sales release for November. Growth is forecast at 3.1% y/y versus a prior 3.3% y/y.
“The consumers’ ability to spend is being inhibited by high unemployment rates and rising living costs‚ in addition to increasing taxes and interest rates‚” Kaplan says.
A deterioration in consumer spending growth‚ coupled with the decline in industrial sector production and the drought portend another year of weak economic growth‚ she notes.