President Cyril Ramaphosa maintained that the Government of National Unity (GNU) is forging closer ties with the business community that will benefit the economy. “The deepening of the relationship between government and business is essential to the growth of our economy,” the president said at Business Unity’s annual general meeting yesterday. “We will continue on the path of structural and regulatory reform to improve the business operating environment,” he added. Improved investor sentiment since the formation of the GNU has been palpable, but South Africa still faces significant economic challenges that need to be addressed. Should the government continue down the path of structural reforms that crowd in the private sector and create a more business-friendly environment, however, stronger economic growth and structurally lower interest rates will ultimately follow. South Africa is certainly on a better trajectory under the banner of the GNU, and investors are watching closely to see that it is sustained.
In the meantime, the local data card picks up today with the release of producer price index stats for July that will provide fresh insights into supply-side inflationary momentum. Producer price outcomes are closely watched as a leading view on the direction of consumer prices. June’s unchanged PPI reading indicated that price pressures have eased and are stabilising around the mid-point of the SARB’s 3%-6% target band. However, there was another acceleration in producer price inflation for food. While overall food PPI remains relatively subdued (4% y/y in June), the ongoing acceleration suggests there will be some impact on future consumer prices. Looking at this week’s print, Bloomberg consensus estimates point to slowdown to 4.5% y/y. Stabilisation in headline PPI is welcome as it helps support the narrative of a further marginal slowdown in consumer price inflation, which, in turn, reinforces expectations for a September interest rate cut.