The South African producer price index (PPI) was published yesterday, showing PPI inflation in final manufacturing goods slowed from 4.6% y/y to 4.2% y/y in July. This was notably lower than consensus expectations, complimented by another deflationary month-on-month print of -0.2%. Although PPI growth for intermediate manufacturing goods, which excludes fuel costs and food, accelerated throughout the month, there are clear signs that inflationary pressures in South Africa are moderating. As this filters through into consumer inflation, the case for the South African Reserve Bank (SARB) to cut rates will continue to strengthen, which explains why the forward rate agreement (FRA) market is currently pricing in more than 50bps of rate-cut risk between now and year-end.
Today, a local data card that includes money supply and monthly budget balance stats for July will be headlined by trade balance numbers for the same month. June’s trade balance of +R24.2bn marked the fifth consecutive monthly surplus, which has been supporting the South African economy as well as the ZAR. Consensus estimates point to the trade balance remaining in a surplus in July, albeit a smaller one of +R17.6bn. Elevated commodity prices, specifically gold, and a stable ZAR oil price are expected to contribute to July’s positive print, with South Africa’s terms of trade index currently at its highest in nearly two years.