Economic week ahead: Inflation on the rise

The South African Reserve Bank expects inflation to average 5.9% this year, but average 6.3% in the third quarter. (Gallo)

The South African Reserve Bank expects inflation to average 5.9% this year, but average 6.3% in the third quarter. (Gallo)

Here is your guide to the data releases, central bank meetings and other events likely to drive global markets in the week ahead. 

South Africa will report July's consumer price index (CPI) readings on Wednesday. Consensus is that consumer prices rose 6.1% from a year earlier last month.

The South African Reserve Bank expects inflation to average 5.9% this year, but average 6.3% in the third quarter. This is above the upper end of the central bank's 3% to 6% target range. 

Speaking at an investment conference last week, the bank's deputy governor Daniel Mminele said policymakers would act to contain price pressures if necessary. 

"For now, the [Reserve] Bank deemed it prudent to keep policy unchanged, but depending on unfolding events in the global and domestic environment, the [Reserve] Bank stands ready, as always, to act in whichever manner is deemed prudent, in line with its mandate, to ensure that inflation does not breach the upper end of the inflation band on a sustained basis, and results in a deterioration of inflation expectations," Mminele said according to written remarks posted to the bank's website.

Elsewhere in Africa this week, Nigeria – Africa's number two economy – will release July CPI, second-quarter gross domestic product (GDP) and trade balance figures, July M2 money supply and last month's private sector credit numbers.
Morocco and Zimbabwe will report last month's consumer inflation figures and the central banks of Mauritius and Namibia will announce their August interest rate decisions. 

On the political front, global markets will continue to monitor the situation in Egypt closely over the coming days. Hundreds were killed last week in clashes between protesters and military forces and a state of emergency remains in force. 

United States
Data released on Friday showed that US builders broke ground on fewer homes than analysts had forecast in July. The number of permits for future construction also rose less than expected, suggesting that higher mortgage rates could be decelerating the housing market's momentum. 

Economists and investors will turn their attention to two more housing-related data releases this week for clarity. 

According to a Bloomberg survey, economists expect combined sales of existing and new homes to rise to an annualised pace of 5.64-million units in July. If the consensus proves accurate, last month would mark the best number observed since November 2009. 

Wednesday's existing home sales data from the National Association of Realtors is expected to show that the seasonally adjusted annualised rate of purchases rose slightly to 5.15-million units in July from 5.08-million in June. 

Friday's new home sales data from the commerce department will likely show that sales slowed to an annualised pace of 487 000 units, down from a five-year high of 497 000 units in June. 

In addition to these two housing indicators, markets around the world will scrutinise the minutes of the Federal Reserve's July meeting on Wednesday. Investors and economists will be looking for clues on when the central bank plans to begin scaling-back the size of its asset purchase programme. Most economists expect officials to reduce monthly asset purchases from their current level of $85-billion per month as early as next month. 

Elsewhere on the calendar, Thursday will bring weekly jobless claims figures and a flash reading of Markit's August purchasing managers' index (PMI). 

A wave of better-than-expected data released last week boosted optimism that Europe – although not completely out of the woods and still facing risks in the months ahead – is finally on the road to recovery. 

Wednesday's flash PMI readings for the eurozone and its two largest economies – Germany and France –  are the big data points in Europe this week. 

Analysts surveyed by Reuters expect the eurozone's composite PMI to rise to a reading of 50.9 in August from 50.5 in July. The region's manufacturing PMI is forecast to rise slightly to 50.6 from 50.3 in July. The currency bloc's services PMI is likely to rise above the 50-mark separating expansion from contraction for the first time in 18-months. 

Indices in Germany are expected to climb further into positive territory as well. Consensus is that Germany's manufacturing PMI will improve to 51.0 from 50.7 last month and that the country's services PMI will edge up to 51.6 in August from 51.3 in July. 

Analysts at 4CAST expect France's manufacturing PMI to cross into positive territory at 50.5 following last month's 49.7 reading. The country's services PMI is likely to improve from last month's 48.6 but remain in contraction territory at a reading of 49.5 this month. 

Closing the week, Germany will release final second quarter growth figures and the United Kingdom will release its second estimate of second quarter GDP on Friday. Markets expect both sets of figures to remain unchanged from earlier releases. 

Japan's ministry of finance released July's trade figures on Monday. As expected, the world's third largest economy posted its 13th consecutive trade deficit. The trade gap totalled ¥1.025-trillion ($10.5-billion) last month, up from ¥182.3-billion in June and ¥528.6-billion in July 2012. 

Exports rose 12.2% from a year earlier, up from a 7.4% increase in June and the largest gain since the 12.9% rise reported in December 2010. Imports increased 19.6%, up from an 11.8% increase in June and also the largest rise observed since 2010.

Analysts are likely to focus on Prime Minister Shinzo Abe's reaction to the release. Abe is considering instituting a large tax hike on Japan's consumers to help address the country's massive debt burden which, at more than double the size of the country's GDP, is the largest in the industrialised world.

Will his government highlight the growing export numbers as evidence that the country's economy is improving and able to absorb the tax? Or will they focus on the large trade deficit – which is bad for the export-oriented country's economy – as a rationale for delaying plans for a tax rise?

Elsewhere in the region, more bad news is expected from China on Thursday. The HSBC/Markit China manufacturing PMI is expected to continue to signal contraction, likely rising to a reading of 48.5 in August from 47.7 in July. 

Thailand and Malaysia will also report second quarter growth figures this week, on Monday and Wednesday respectively. Growth likely slowed in Thailand, but rebounded slightly in Malaysia. 

Matt Quigley

Matt Quigley

Matt Quigley writes the weekly economic preview for the Mail & Guardian. His blog on the South African economy can be found at Read more from Matt Quigley

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