Bleak forecasts for the global economy were echoed by similar warnings of tougher conditions from local economists this week.
South Africa’s consumer inflation rose higher than expected last month, to 5.3%, up from a 5% increase in June, Stats SA announced on Wednesday.
But, in spite of the jump comments made by Reserve Bank Governor Gill Marcus earlier this week indicated that the central bank could hold off on interest rate hikes if global economic conditions worse.
South Africa’s leading indicator has also shown signs of slacking off, according to economists, signalling a slowdown for South Africa’s economy.
Investec’s Kgotso Radira noted that inflation jumped thanks to increases in food, fuel and rising administered prices, notably that of electricity.
Domestic food price inflation had increased sharply from about 1.1% year on year in July last year to 7.5% currently, largely driven by processed food prices, which reflected elevated input costs in the production process, Radira said.
Although domestic food prices had lagged behind the increases seen globally they were expected to continue rising on the back of increased input costs such as wages, electricity and transport, Radira noted.
Meanwhile, electricity contributed 0.3% to the total, reflecting the 16% hike in electricity tariffs.
According to Nedbank economist Carmen Altenkirch much now depends on what happens globally and how this filters through to the domestic economy. Nedbank was expecting global growth to slow with a concomitant easing of commodity prices, reducing the sources of pressure on domestic inflation.
“Weaker global growth will curb domestic demand, keeping employment growth subdued and eroding consumer confidence. Weaker household spending will limit retailers’ pricing power,” Altenkirch said.
The Reserve Bank’s leading economic indicator, despite an increase of 1.8% this month, had shown previous consecutive declines, according to Stanlib economist Kevin Lings.
He said it was a measure indicating the outlook for the local economy and incorporated a number of sub-indicators, including items such as opinion surveys of business confidence in manufacturing, construction and trade, the average hours worked by each factory worker in the manufacturing sector, and the number of residential building plans passed.
“The slowdown in the domestic economy, certainly relative to the surprise growth of 4.8% quarter on quarter in Q1 2011, has become very noticeable in the past few months — both in terms of anecdotal comments from domestic businesses and some sector-specific economic data,” said Lings.
“This weakening in economic activity is partly due to the fall-off in activity levels in most major economies, as well as a loss of growth momentum in real household incomes and a lack of investment spending and job creation locally.”
But, although a loss of momentum towards economic recovery could be expected, he said, this did not necessarily mean a return to recession conditions.