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Is SA heading for stagflation?


Weak preliminary indicators, which include manufacturing production, mining output, and retail trade sales, strongly suggest that South Africa’s GDP growth rate could record a quarter-on-quarter annualised contraction during the first quarter.
Thea Fourie, senior economist at IHS Global Insight, provides the following analysis:
With inflation unlikely to ease back in coming months, a reflection of stronger international oil prices, a weaker rand exchange rate and persistent upward pressures on food prices, room for further monetary tightening remains. IHS maintains the view that the SARB’s policy rate could edge up by a further 50 basis points during the remainder of 2016.
South Africa’s headline inflation rate eased back marginally to 6,2% year on year (y/y) in April from 6,3% y/y in the previous month.
Latest official figures released by Statistics South Africa (StatsSA) show that the largest contributors to the annual rise include the foods and non-alcoholic beverages sub-category, followed by the alcoholic beverages and tobacco and the transport sub-categories.
South Africa’s core inflation rate (excluding food, fuel and energy) trailed up marginally to 5,5% y/y in April from 5,4% y/y in March.