South African Inflation Rises Again In August

South African inflation hit a record annual level for the third consecutive month in August, reaching 13.6 percent, as electricity and food costs continued to rise. The CPIX inflation rate, which excludes mortgage costs, increased from 13 percent in July according to today's data from the Pretoria-based Statistics South Africa. Prices were up by 0.9 percent month on month.



The central bank has increased its repurchase rate by 3 percentage points since June last year to the present level of 12 percent as inflation soared above its 3 percent to 6 percent target range.




The bank now expects inflation to drop within the target by the second quarter of 2010. Higher interest rates have also hurt consumer spending, and retail sales are falling, dropping by a record annual 4.6 percent in July, according to separate data from the statistics office. This is the fifth consecutive month in which retail sales have fallen. Consumer spending growth slowed to an annualized 1.2 percent in the second quarter, the lowest in more than five years, and South African vehicle sales plunged an annual 30 percent in August, the biggest drop in 14 years. Manufacturing output growth was also down to a year on year 3.3% in July.

The weakening in the economy, and the probability that inflation may now be about to slow make further rates increases unlikely in the short term.

South African Manufacturing Output Slows In July, Rand Decline Continues

South African manufacturing growth slowed to an annual 3.3 percent in July as higher interest rates continued to damp consumer spending. Growth in manufacturing output - which accounts for 16 percent of the South African economy - fell back from a revised 5.7 percent in June, according to data from Statistics South Africa earlier this week. Output fell a seasonally adjusted 0.4 percent in the month. Manufacturing output of food and beverages were down by an annual 3.3 percent in July, textile and clothing production dropped an annual 5.2 percent in July, while vehicle output declined 5.1 percent.

Sales of manufactured products have fallen considerably since the central bank began increasing the benchmark interest rate in June 2007. It has now been raised six times to the current 12 percent rate. The slowdown in manufacturing suggests that growth in Africa's largest economy, which rebounded to an annualized 4.9 percent in the second quarter from 2.1 percent in Q1, may now be slowing again.




The Reserve Bank left interest rates unchanged on Aug. 14 as consumer spending eased and it forecast inflation, which reached 13 percent in July, will slow significantly in the last quarter of the year. The bank will very likely begin lowering interest rates late in the first half of 2009.



There have been clear signs recently that domestic consumer demand has been weakening. Vehicle sales fell by an annual 30 percent in August, the biggest decline in 14 years. Retail sales fell for a fourth consecutive month in June, dropping by an annual 2.6 percent.

Falling Rand

South Africa's rand slipped back to its lowest level since May 2003 against the dollar following publication of the manufacturing report. This was the third day the rand has fallen as platinum, South Africa's most important export, slumped to a 20-month low and gold also declined. The rand droppedat one point by  as much as 1.5 percent to 8.3322 per dollar, touching the weakestlevel  since May 2003, although it was back at 8.3258 by 4 p.m. in Johannesburg. 



South Africa produces about 10 percent of the world's gold and almost 80 percent of its platinum, and the rand often  moves in tandem with these commodity prices. The movement in the value of the rand has been almost constant since late July now, as the dollar has risen steadily, reflecting in part declining global risk sentiment.

South Africa's business confidence index fell 11 points to 34, marking its eighth quarterly decline, according to the survey published by Rand Merchant Bank yesterday. The index is now at its lowest level since the first quarter of 2001.

South Africa's Current Account Deficit Slightly Lower In Q2 2008

South Africa's current account deficit narrowed to 7.3 percent of gross domestic product in the second quarter as power outages eased, boosting gold and platinum exports. The deficit shrank from a revised 8.9 percent of GDP in Q1, according to data from the Pretoria-based Reserve Bank.

Electricity supply stabilized in the second quarter after power outages forced mines to shut for five days in January, enabling a rebound in exports. Imports also gained as the government stepped up spending on stadiums, roads and power plants, keeping the deficit above 7 percent for a fourth consecutive quarter.

The deficit narrowed to an annualized 164.4 billion rand ($20.9 billion) in the second quarter from 194.6 billion rand in the previous three months.

South Africa relies mainly on foreign investment in stocks and bonds to fund its import needs, inflows that began to dry up in the fourth quarter as investors sold riskier, emerging market assets. The rand has fallen 13 percent against the dollar this year on concern South Africa will struggle to finance the deficit.

The country recorded an inflow of portfolio investment of 27.3 billion rand in the second quarter, compared with an outflow of 19.1 billion rand in the previous three months, the central bank said. The deficit has widened in the past two years as the government boosted spending on road, rail and power infrastructure in preparation for hosting the 2010 FIFA World Cup. About 40 percent of the equipment needed for the 568 billion rand infrastructure program will need to be imported, according to government estimates. The government expects the deficit to reach 7.9 percent of GDP in 2009 and 8 percent in 2010, compared with an estimated 7.3 percent this year.

Export volumes rose an annualized 12.2 percent in the second quarter after dropping 7.2 percent in the first three months of the year, the central bank said. Higher gold and platinum prices helped to boost the value of exports by 20 percent to an annualized 682.1 billion rand in the second quarter. Imports rose 12 percent to an annualized 760.9 billion rand in the same period, the central bank said.

South African Mortgage Growth Slows In August

According to the Absa Group, which is South Africa's biggest mortgage lender, South African house-price growth slowed to an annual 1.7 percent in August, the slowest pace since January 1993, as rising interest rates curbed demand. Growth in house prices fell back from a revised 2.6 percent in July. The average price of a house was 962,500 rand ($122,294) last month. Adjusted for inflation, prices in the middle-segment of the market dropped by an annual 9.6 percent in July, the sixth monthly decline in real terms, and the biggest drop in real terms since November 1992.

South Africa Trade Gap Widens In July

South Africa's trade deficit widened to 14.3 billion rand ($1.9 billion) in July, close to a record, as oil prices surged, boosting import costs. The deficit increased from 200 million rand in June, according to data out today from the South African Revenue Service. The shortfall was close to a high of 14.7 billion rand reached in October 2007.

Crude oil climbed to a record $145.29 a barrel in New York on July 3, while the rand's 12 percent drop against the dollar in the first half of the year boosted import costs. The rand has weakened this year on concern South Africa will struggle to attract the foreign investment needed to finance its import needs as the current account deficit widened to a 26-year high of 9 percent of gross domestic product in the first quarter.

Against the dollar, the rand dropped as low as 7.728 from 7.674 before the data was released, and was trading at 7.70 as of 2:34 p.m. in Johannesburg.



The South African government is spending 568 billion rand over the next three years on power plants, roads and stadiums as it prepares to host the 2010 FIFA World Cup. About 40 percent of the equipment needed for the infrastructure investment will be imported, according to government estimates.

Imports jumped 25 percent to 75.6 billion rand, mainly due to a 53 percent surge in oil, the revenue services said. Exports increased 1.8 percent to 61.3 billion rand as a drop in gold and platinum prices offset an increase in coal exports. The price of platinum, South Africa's biggest export, plunged 15 percent last month, while gold dropped 2.7 percent.

South Africa Credit Growth Slows In July

South African credit growth slowed in July for the first time in four months, dropping back to an annual 19.8 percent, as higher interest rates crimped consumer spending on items like cars and furniture. Growth in borrowing by households and companies slowed from a revised 20.4 percent in June, according to the latest data from the Pretoria-based central bank said on its Web site today.

The central bank has raised its benchmark interest rate six times to 12 percent since June 2007 to tame inflation, which has exceeded its 6 percent target for more than a year. Vehicle sales plunged an annual 20 percent in July, according to an industry body, while retail sales dropped for a fourth consecutive month in June, falling 2.6 percent from a year earlier.


The slowdown in credit growth may help ease inflation at the same time that lower oil costs curb price pressures. The inflation rate, which reached 13 percent in July, may fall ``significantly'' in the last quarter, Governor Tito Mboweni said on Aug. 14, after leaving interest rates unchanged.

The broad M3 measure of money supply rose an annual 18.5 percent in July, compared with a revised 20.3 percent in June.

South African Unemployment Down To 22% in Q2 2008

South Africa's unemployment rate fell to 23.1 percent in the second quarter as economic growth rebounded from a six-year low. The jobless rate dropped from 23.5 percent in the first three months of the year, according to the latest data from the Pretoria-based Statistics South Africa. The number of people out of work declined to 4.11 million from 4.19 million.

Africa's biggest economy expanded an annualized 4.9 percent in the second quarter, up from 2.1 percent in the previous three months, as a power shortage that shut gold and platinum mines in January eased. Employment in mining rose 3.9 percent to 346,000 in the second quarter from the previous three months, while jobs in the transport industry increased 3.6 percent to 774,000. The trade industry, the biggest employer in the economy, lost 51,000 jobs, or 1.6 percent, to 3.1 million.


South Africa's economy hasn't increased jobs at a fast enough pace to slash unemployment, fueling poverty and crime in the country. A shortage of skilled workers, such as engineers, is also hampering the government's goal to cut the unemployment rate to 14 percent by 2014 and halve poverty.

South Africa Producer Price Inflation Highest In 22 Years

The cost of goods leaving South African factories and mines rose at the fastest pace in 22 years in July, pushed up by surging fuel and electricity prices. Producer-price inflation accelerated to 18.9 percent from 16.8 percent in June, according to the latest data from the Pretoria-based Statistics South Africa. Month on month, prices rose 2.7 percent.

Factory-gate inflation has now exceeded 10 percent for seven months, adding to pressure on consumer prices as retailers pass on higher costs. Consumer inflation accelerated to 13 percent in July, the fastest pace since the government began compiling the data in 1998, the statistics agency said yesterday.



The central bank raised its benchmark interest rate by half a percentage point to 12 percent on June 12, the sixth increase in less than a year. The bank's monetary policy committee kept rates on hold at the conclusion of its last meeting on Aug. 14 after the oil price declined and economic growth slowed.

Prices of imported goods used in manufacturing rose an annual 22.8 percent in June, down from 24.6 percent in the previous month, the statistics office said.

South African Inflation Accelerated In July 2008

South African inflation accelerated to 13 percent in July, the fastest pace since the government began compiling the data in 1998, after the state-owned electricity utility raised prices and fuel costs increased. The CPIX inflation rate, which excludes mortgage costs, rose from 11.6 percent in June, Pretoria-based Statistics South Africa said today. Prices rose 2.5 percent in the month.

The Reserve Bank expects inflation to peak at an average of 13 percent this quarter and slow ``significantly'' by the first quarter of next year, Governor Tito Mboweni saidearlier this month after leaving interest rates unchanged.

Fuel and power costs surged an annual 23 percent last month, compared with 9.6 percent in June, the statistics office said today.

Eskom, which supplies 95 percent of the country's power, hasn't kept pace with rising demand after the government delayed investment in new plants. A power shortage shut gold and platinum mines, the country's biggest export earners, for five days in January, followed by scheduled blackouts of up to four hours to cities.

The power utility raised prices last month to help pay for a 343 billion-rand ($44 billion) five-year expansion plan aimed at easing the shortage. Electricity tariffs may increase again after the National Energy Regulator agreed to allow Eskom to pass on higher coal and diesel costs to customers.


Improving the inflation outlook are expected changes to the measurement of the consumer price index next year. The statistics office said on July 1 it will reduce the weighting of food in the index, possibly lowering the inflation rate. The CPIX inflation rate will probably drop to about 9 percent in January from 12.2 percent in December, and reach the 6 percent upper end of the target range by July, allowing the central bank to begin cutting interest rates from June.

The central bank will also switch to targeting the headline inflation rate, rather than CPIX from next year.

The headline inflation rate, which includes mortgage costs, rose to 13.4 percent last month from 12.2 percent in June. Core inflation, which excludes mortgage interest and some food items, accelerated to 13.7 percent from 12 percent.

South Africa To Target Headline Inflation In Future

South Africa will switch to targeting headline inflation next year instead of CPIX, which measures consumer prices excluding mortgage interest costs. "We will be targeting CPI from next year" Lesetja Kganyago, the director general of the National Treasury is quoted as saying. Statistics South Africa will stop publishing the CPIX data from January. The Treasury will say whether it will make any changes to the 3 percent to 6 percent target range at the mid-term budget meeting in October, or at the main budget meeting in February, according to Kganyago "We believe the 3 percent to 6 percent range seems still to be a range that is consistent with our growth objectives".

South African GDP Accelerates In Q2 2008

South African economic growth rebounded to an annualized 4.9 percent in the second quarter as a power shortage that shut mines in January eased. Gross domestic product climbed from 2.1 percent in the first three months of the year, Pretoria-based Statistics South Africa said in a report today.

Mining and manufacturing output, which together account for about a fifth of the economy, rebounded as electricity supply stabilized. Growth may slow again as six interest rate increases since June last year slash consumer spending on cars and furniture.


Output in the retail, hotel and restaurant industries dropped an annualized 2.2 percent in the second quarter, after gaining 3.6 percent in the previous three months. Growth in the finance and real estate industries slowed to 2.3 percent from 4.9 percent in the first quarter.



The Reserve Bank increased its benchmark interest rate to 12 percent in June, curbing spending and cutting profits at companies such as JD Group Ltd., the country's biggest furniture retailer. Retail sales fell an annual 2.6 percent in June, the fourth consecutive monthly decline.



Mining surged an annualized 15.6 percent in the second quarter, after plunging a revised 25.1 percent in the previous three months. Manufacturing jumped 14.5 percent after dropping 1 percent in the first quarter.

Construction continued to boom, expanding 10.6 percent in the second quarter, as the government stepped up spending on roads and stadiums in preparation for the 2010 FIFA World Cup. Eskom Holdings, the state-owned electricity utility, is spending 343 billion rand ($44.3 billion) over the next five years to expand capacity.

South Africa Central Bank Leaves Interest Rate Unchanged At 12%

South Africa's central bank left its benchmark interest rate unchanged following six increases since June last year which have significantly curbed consumer spending in what is Africa's largest economy. The repurchase rate will remain at 12 percent, Governor Tito Mboweni said in a televised speech from Pretoria today. Interest rates may have peaked as a month-long decline in oil prices and a rally in the rand, combined with the higher borrowing costs, have all begun to ease pressure on prices. Inflation, which climbed to a 10- year high of 11.6 percent in June, will slow `"significantly'' in the first quarter of 2009, coming back into the 3 percent to 6 percent target range by 2010, according to Mboweni.

The Reserve Bank has increased its borrowing costs by three percentage points since June last year, slowing consumer spending. Vehicle sales plunged an annual 20 percent in July, after dropping 21 percent in the previous month. Retail sales fell for a fourth consecutive month in June, declining 2.6 percent from a year ago, the statistics office said yesterday.

Mboweni added that the current account deficit, the broadest measure of trade in goods and services, probably narrowed in the second quarter, while economic growth rebounded from a six-year low in the first three months of the year. The current account gap reached a 26-year high of 9 percent of gross domestic product in the first quarter, while economic growth was an annualized 2.1 percent.

South Africa Manufacturing Up 6.1% In June

South African manufacturing increased an annual 6.1 percent in June after output of oil products, such as gasoline, rebounded from a drop in the same month last year when some refineries were shut, the statistics office said. Factory production rose from a revised 1.1 percent in May, Pretoria-based Statistics South Africa said today. The jump in manufacturing, which accounts for 16 percent of the economy, may be temporary as six interest rate increases since June last year curb consumer spending on furniture and cars, and higher oil prices boost business costs.

Factory output climbed in June after production of oil products jumped an annual 31 percent, as compare with a 21 percent drop in the same month last year when some refineries were shut because of maintenance, the statistics office said. Production of food and beverages rose an annual 13.8 percent in June, up from 2.2 percent in May, it added.

Higher interest rates have slashed spending on cars, with sales dropping an annual 19.7 percent in July, the 16th consecutive monthly decline, an industry body said on Aug. 4. Retail sales fell for the third straight month in May, sliding 3.6 percent from a year ago, the statistics office said on July 16.

South Africa's Energy Crisis

Executives at Eskom, South Africa's state-owned power utility, have just presented their most detailed recovery plan to date. They are currently attempting to both reduce concerns about the power crisis and raise portions of the R350bn ($48bn, €31bn, £24bn) needed to finance a new set of power plants. Topping Eskom’s list of good news was the South African energy regulator’s decision in June to raise the price of electricity by 27 per cent this year, followed by rises of between 20 and 25 per cent for the next three years.

Soaring costs of coal and diesel fuel, however, threaten to plunge Eskom into annual losses before it begins its capital expenditure programme in earnest. South Africa is still running on a dangerously thin reserve margin of electricity. Any unexpected spikes in demand could plunge the country into the rolling blackouts it has already experienced back in January. A precarious reserve margin is expected to last until at least 2012.

The crux of South Africa’s problem is on the supply side. It cannot expect significant boosts to its power supply for four more years until the first of huge new coal-fired power plants come on line. To “plug the gap” Eskom plans to focus on generating power through trapping steam and other byproducts of existing industrial processes. The duration of the country’s power crisis partly depends on how quickly Eskom can raise international financing to build plants, and that depends on maintaining its investment-grade credit rating.

Moody’s, Standard and Poor’s and Fitch are all weighing downgrades, but none has made announcements yet. Key to their assessments is the government backing that Eskom can expect over its five-year, R350bn expansion plan.

The Rand

South Africa's rand fell against the dollar last Friday. The currency retreated from a six-month high against the dollar, dropping 0.2 percent to 7.3515 as of 11:24 a.m. in Johannesburg, from 7.3360 yesterday. Earlier it rose as much as 0.6 percent to 7.2887, the strongest level since Jan. 31. South Africa's currency was the best performer in the world against the dollar and euro in July on bets accelerating inflation will spur the central bank to lift interest rates, boosting demand for the rand in so-called carry trades.

House Prices

South African house prices fell 2.6 percent in July from a year ago as accelerating inflation and interest rates at a five-year high discouraged buyers, according to Standard Bank Group Ltd., Africa's biggest lender. The median price of a house dropped to 570,000 rand ($77,975). It was the fifth month of annual declines in home prices in Africa's biggest economy.