Up-and-down outlook as rand continues its slide
Inflation data released by Statistics South Africa this week showed that the headline Consumer Price Index annual inflation rate in December was 5.4% – up by 0.1 percentage points from 5.3% in November.
On average, prices increased by 0.3% in December from November. The official average annual inflation rate for 2013 was 5.7% – an increase of 0.1 percentage points compared with 5.6% for 2012.
Investec economist Annabel Bishop said the inflation outcome was below market expectations of 5.6% and would likely reduce inflation expectations for the first quarter of 2014.
Bishop said Investec expects no interest rate hikes in 2014, on the presumption that inflation stays within the Reserve Bank's target range of 3% to 6%.
The annual percentage change in the Producer Price Index, which measures the average change in the price of goods and services sold by manufacturers and producers in the wholesale market, was 5.8% in November compared with 6.3% in October.
Bad start for manufacturing
It was a bad start to the year for manufacturing when the Kagiso Purchasing Managers' Index, which measures growth in manufacturing output, showed no positive results from the weak rand as it fell 2.5 points in December to 49.9. This was the first time since April last year that it had fallen below the critical 50 point mark.
The rand reached R10.96 to the dollar this month from R10.38 in November.
But Investec said this depreciation is neither as rapid nor as severe as those that took place in 2001 and 2008.
The start of quantitative easing tapering in the United States in December has seen the rand weaken, although Reserve Bank governor Gill Marcus has noted that it will have a positive impact on South Africa in the long run.
Manufacturing production increased by 0.3% on the year in November, owing mainly to increased production of motor vehicles, parts and accessories and other transport equipment, as well as food and beverages, and glass and nonmetallic minerals.
Seasonally adjusted manufacturing production for the three months ending November decreased by 1.0% compared with the previous three months.
But retail sales were up by 4.2% in November compared with a year earlier from 1.4% on the year in October, which was significantly higher than market expectations of 1% growth.
Hope for SA's economy
Growth in broad money supply was down to 6.3% on the year in November from 7.1% in October, the Reserve Bank reported at the end of December.
The International Monetary Fund this week revised South Africa's economic growth outlook for 2014 downward to 2.8% from 2.9%, but says it will still be higher than the growth recorded in 2013.
The Bank of America Merrill Lynch says South African growth could reach 2.9% as exports to Europe, the US and China rise. It predicted that this would generate as many as 280 000 new jobs a year.
Bishop said the data is indeed a mix of positive and negative, "but it is still early in the year and we will get clearer direction as we move into 2014".