THE MARKETS moved to positive territory yesterday, after easing of geopolitical tensions, while domestic economic indicators pointed to an uptick in activity.
The rand strengthened to a three-week high yesterday to R15.07 against the US dollar as inflation eased in January, while retail sales growth was above forecasts in December.
Statistics South Africa (StatsSA) yesterday said headline inflation softened to 5.7 percent year-on-year in January from a near five-year high of 5.9 percent in December.
Despite January’s easing to 5.7 percent, inflation remained near the South African Reserve Bank’s target upper-limit of 3 percent to 6 percent.
StatsSA said January inflation was mainly the result of lower fuel prices.
The price of inland 95-octane petrol fell by 68 cents per litre and diesel was down by 25 cents per litre in January.
Food price inflation has also started rising again, driven by increased production costs and pushed higher by elevated commodity prices globally.
Although economists remain concerned about the upside risk to food and fuel inflation in the first half of 2022, there should be strong favourable base effects in the second half of the year.
Nedbank economist Candice Reddy said that inflation would probably remain elevated in the first half of this year, with much of the upward pressure coming from stubbornly high global oil prices.
Reddy said the recent surge in oil prices reflected concerns that the tensions between Russia and Ukraine could potentially disrupt oil supplies, aggravating existing demand-supply mismatches.
“Inflation is forecast to moderate over the second half of the year, dropping to below the 4.5 percent midpoint of the SA Reserve Bank’s inflation targeting range,” she said.
“Local electricity tariffs continue to pose upside risks, with Eskom applying for a 20.5 percent increase for 2022/23.”
Despite this, the Monetary Policy Committee (MPC) is expected to increase interest rates further to counter the current upside risks to inflation and the threat of financial instability, as global monetary policies tighten.
Momentum Investments economist Sanisha Packirisamy said the upside risks to inflation would leave the MPC with no choice but to raise the repo rate from 4 percent next month.
“The January 2022 inflation figure does not derail our view on monetary policy moves for the remainder of the year,” Packirisamy said.
“We continue to forecast a further three hikes of 25 basis points each for 2022, with the repo rate reaching a terminal value of 5.75 percent in early 2024.”
Meanwhile, retail sales grew above forecasts, advancing by 3.1 percent in December, following November’s revised 2.7 percent lift which was supported by a pick-up in Black Friday sales.
This was the fourth straight month of growth in retail activity and at the fastest pace since June, mainly boosted by sales of textiles, clothing, footwear, and leather goods.
Considering the 2021 year as a whole, retail trade grew 6.4 percent compared to a 7.1 percent slump in 2020.
“Despite this positive result, retailers continue to face a number of challenges including electricity supply concerns and supply bottlenecks associated with the pandemic, while many consumers remain financially challenged,” said Investec economist Lara Hodes.
South African stocks also rose the highest in three weeks, amid easing concerns over an imminent military conflict between Russia and Ukraine that could have a destabilising effect on the global economy.
The JSE All Share Index rose more than 1 percent to 76 688 points, after Moscow announced a partial withdrawal of troops from its border with Ukraine.
BUSINESS REPORT ONLINE