Johannesburg, 20 March 2918 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is encouraged by the latest consumer price index (CPI) figures indicating a continued easing of inflation, with the number still below 5% and well within the South African Reserve Bank’s (SARB) targeted band, the Federation’s Chief Economist, Michael Ade, said this morning.
Annual CPI was 4.0% in February 2018, down from 4,4% in January 2018. The index increased by 0.8% month on month in February 2018.
“The easing in the prices of goods and services augurs well for domestic consumers who have been facing a number of headwinds. Overwhelmed by the prospect of a possible VAT increase which is included in the CPI but excluded from the producer price index (PPI), embattled consumers are still facing tight credit conditions and the painful task of keeping their credit accounts in good standing.
The lower CPI is, therefore, welcomed as it will generally reduce pressure on over-indebted households and improve on the cost of living. Moreover, consumers’ ability to maintain repayments becomes even less precarious,” Dr Ade said.
He said the low rate is also good for the broader economy as no further tightening in monetary policy is required by the SARB in the forthcoming months. Instead, the bank has the luxury of pursuing expansionary monetary policy to further stimulate domestic demand and increase the consumption of finished industrial goods. He said the less stringent monetary policy will effectively stimulate additional production, reinforce the supply side dynamics and generally improve gross domestic product.
“The expectation is that the prevailing twin cycles of fairly low interest rates and low inflation will increase the number of active consumers entering the market and consuming finished manufactured products. Confidence in the manufacturing sector – including the metals and engineering cluster – edged up slightly in the first two months of quarter one this year and consumer confidence is gradually improving from a low base”, said Dr Ade.
He added that the changing political landscape was likely to inject further certainty into domestic consumers and the world at large. He said there was a good chance that the generally low inflation, increasing asset prices, recent political changes and an improving global economic environment will help boost consumer and business confidence, thereby providing impetus to the domestic business cycle.
“Increased consumer demand against the backdrop of a low CPI is generally good for the manufacturing sector, including its metals and engineering cluster, especially given that demand for industrial goods is usually based on demand for consumer goods which they help to produce,” Dr Ade concluded.
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