The economic week leading up to Black Friday was relatively quiet, but there was positive news about South Africas Producer Price Index PPI ahead of the anticipated GDP figures for the third quarter, which are expected to show some economic growth.
The rand remained above the R18 mark against the US dollar, firming to R18.03/ on Friday morning. However, economists from Nedbank, Isaac Matshego and Busisiwe Nkonki, warned that the rand could face continued pressure due to US president-elect Donald Trump's threats to impose punitive tariffs on Chinese goods. Given that China is a major buyer of South African commodities, a weakening Chinese economy could negatively impact the rand.
In October, South Africas Producer Price Index PPI entered deflationary territory, with a 0.7 decline in prices. Excluding petroleum-related products, producer inflation stood at 2.7, showing a slight decline from the previous month. The overall decline in PPI was largely driven by significant drops in petrol and diesel prices. Transport equipment prices also continued to decline, while food, beverages, and tobacco inflation eased slightly to 3.6.
Economists from FNB, including Mamello Matikinca-Ngwenya and Siphamandla Mkhwanazi, noted that this drop marked a significant and ongoing moderation from the peak of 18.0 recorded in July 2022. On a month-to-month basis, PPI declined for the fifth consecutive month. They expect production inflation to rise modestly in the months ahead, but the increase will likely be limited due to low global oil prices, a steady rand, and subdued food inflation. The potential threats to the rand from the new US administrations policies and geopolitical tensions in the Middle East remain key risks.
The Bureau for Economic Researchs Tracey-lee Solomon highlighted that the monthly declines in PPI had lasted for five months, but October marked the first annual drop in 2024. She suggested that lower producer prices could eventually lead to a decrease in consumer inflation, supporting arguments for potential interest rate cuts in the future.
