The FNB House Price Index growth moved sideways in February, averaging 3.8% y/y. Price growth appears to have stabilised in the last few months, likely due to the receding supply of properties on the market for sale. The on-going Russia-Ukraine conflict could pose downside risks to the domestic housing market. If sentiment is significantly dampened as a result, then our expectations of a continued recovery in affluent segments in 2022 may, likewise, be dampened.
The latest consumer price inflation data for May 2022 revealed a faster pace of price acceleration than previously anticipated. Headline inflation posted 6.5% y/y, the highest in five years and firmly above the South African Reserve Bank's inflation target. This data showed a sharp uptick in food and fuel prices, which will rise further in the coming months. In preparation for the increasing winter costs, we discuss below the expected inflation in food and transport costs, along with some other essentials.
In our previous reports, we have shown that living costs are on the rise, with inflation expected to breach the upper-level target(see our report here). Correspondingly, we have argued that the Reserve Bank is likely to increase interest rates at a faster pace relative to initial expectations. In our view, these compound the pre-existing pressures on the consumer. In this piece, we round up available high frequency data to assess the current state of the consumer.
The current account, seasonally adjusted and annualised, recorded a surplus of R143 billion in 1Q22, widening from a surplus of R132 billion (revised up from R120 billion) in 4Q21. As a percentage of GDP, the current account was 2.2%, from 2.1% (revised up from 1.9%) previously.
Next week, the economic focus will be on this year’s weak GDP growth prognosis when Stats SA releases 1Q22 GDP data. We expect GDP growth to have remained steady at around 1.1% q/q (seasonally adjusted but not annualised) compared to 1.2% q/q in 4Q21. Our below-consensus GDP growth forecast of 1.7% this year faces several headwinds, and we are more concerned about the growth outcome for the second quarter. Here we highlight how some, but not all, sectors contributed to our first-quarter growth estimate and briefly discuss conditions that underpin our 2022 growth prognosis.
After troughing at 2.1% y/y in May 2020, due to a lockdown-driven fall in demand and statistical imputations, headline inflation accelerated to 5.2% y/y in May of 2021. CPI weights are typically updated at least every five years, in line with international standards. New weights will be introduced with the January 2022 data and the base year will change to December 2020.
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