Yesterday, the June print of the South African Reserve Bank’s (SARB) leading indicator was released and came in slightly softer. The leading indicator declined to 111.4 points in June, compared to 111.9 points the month before. The decline in June aligns with subdued confidence among businesses and households. Furthermore, the June reading appears to have been too early to reflect optimism surrounding the formation of the new centrist Government of National Unity (GNU). There are some accuracy concerns with the data, as four of the eleven inputs were unavailable. However, economic conditions are improving compared to last year, with a lack of load-shedding playing a prominent role. On a year-to-year basis, the leading indicator registered growth for a third consecutive month, expanding at 1.6% y/y, and is expected to continue as the GNU optimism takes effect in upcoming prints.
Today, the July print of the domestic Consumer Price Index (CPI) print will provide an update on inflation pressures and the speed at which consumers’ incomes are being eroded. Bloomberg’s median consensus estimate for July is 4.8% y/y, compared to the June headline figure of 5.1% as the lower fuel prices, subdued food prices, and a stronger ZAR take effect. CPI core is anticipated to hold at the SARB’s mid-point target of 4.5% y/y. The SARB uses the CPI data to inform interest rate adjustment decisions, and a further decline in the pace of consumer price growth will help open the door for the SARB to start the rate-cutting cycle in September. As it stands, the central bank is widely expected to ease monetary policy by 25 basis points (0.25 percentage points), especially if the US Federal Reserve begins cutting next month.