Data published yesterday showed the SARB’s composite leading indicator decreased to 112.8 points in August from 113.6 points in July. Annual growth in the indicator decelerated to +2.4% y/y in August, from +4.0% y/y in August. Although lower than its previous month’s reading, August marks the fifth consecutive month of year-on-year growth. Despite the slight decrease in the SARB’s leading indicator, the ongoing year-on-year expansion signals that business conditions in South Africa continue to improve. However, it is important to note that for sustained growth to materialise, corresponding policy changes that will address domestic inefficiencies need to be implemented.
Today, the spotlight will be on the September CPI inflation print. Consumer inflation is expected to drop below 4% for the first time in more than three years, driven primarily by ongoing fuel price declines and a stronger ZAR. Another SARB rate cut in November is therefore anticipated, but lower-than-expected CPI readings could lead markets to price in a higher probability of a 50bp cut. At the same time, SARB Governor Kganyago may look to use the opportunity to officially make the case for a lower inflation target in SA, which he has been arguing for in recent years.