Weekly economic wrap: subdued inflation and unbelievable retail sales

Economic data started picking up this week, with a subdued inflation rate for December and the best retail sales recorded in 14 years for November. Global economics were still waiting for actual figures to see how US President Donald Trump will hike tariffs on imports.

Bianca Botes, director at Citadel Global, says commodity markets are reacting to geopolitical developments and US policy in particular.

She says Brent crude oil futures stabilised near $79/barrel after an industry report that revealed the first rise in US crude stockpiles since mid-November, raising concerns about supply dynamics as Indian refiners seek alternatives due to lost Russian supplies on the back of US sanctions.

The gold price eased slightly to around $2,750 per ounce, halting a three-day gain but remaining near its highest level since early November, Botes says. “The metal’s appeal as a safe haven has been bolstered by uncertainty surrounding Trump’s tariff plans and fears of trade wars.”

Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the Brent crude oil price fell after US President Donald Trump signed an executive order to invest in more oil production.

“He also urged OPEC producers to slash oil prices in his address to the WEF gathering on Thursday. Gold and platinum prices gained this week as worries about global growth and inflation eased.”

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Is the rand picking up its head again?

Botes notes that the US dollar Index dipped to 108.2, influenced by rising unemployment claims and benefit rolls reaching a three-year high. The rand traded around R18.37/$ on Friday afternoon, benefitting from a softer dollar.

Matshego and Nkonki say this week the rand maintained its rebound that started on 10 January, with the local unit trading around R18.40/$, a 3.8% gain from the low it hit two weeks ago.

“It has also recovered against the euro, firming by 1.7%, and the British pound, firming by 1.8%, as the improvement in global risk aversion, as investors’ fears about the effects of Trump policies eased, boosted emerging market currencies.

“The US dollar continued to surrender this week, with pressure added by Trump’s comments that he would “demand” lower interest rates.”

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Inflation marginally higher in December

Headline inflation averaged 4.4% in 2024, down from 6.0% in 2023.

Nadia Matulich, economist at the Bureau for Economic Research (BER), says inflation accelerated to ‘just’ 3% in December, up from 2.9% in November. “This was below our and the consensus forecast. Food inflation also surprised to the downside. This helps keep the 2025 inflation forecast fairly subdued and offers an encouraging signal ahead of next week’s Monetary Policy Committee (MPC) meeting that a further repo rate cut should be on the cards.

Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say the monthly pressure was 0.1%, reflecting slight contributions from fuel and food inflation.

“We see inflation remaining subdued in the first half of the year and rising steadily into the second half of the year. We anticipate that headline inflation will post 3.2% in January and settle above 5% by the end of the year. This will be dictated by fading positive base effects and improving demand.

“Nevertheless, average inflation should be softer than in 2024. Risks to the outlook include a more robust normalisation in services inflation as well as a faster acceleration in administered price inflation. These local risks could be mitigated by weak global growth and contained commodity price pressures.”

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Core inflation showed underlying price pressures

Matshego and Nkonki say the increase in inflation was mainly driven by slower deflation in transport and increasing food inflation, with transport deflation slowing to 2% from 3.3% in November due to another increase in fuel prices.

“Core inflation, which excludes food and fuel prices, eased from 3.7% in November to 3.6% in December, reflecting subdued underlying price pressures as restrictive monetary policy kept demand in check, while structural reforms improved supply conditions.

“We expect inflation to drift higher but remain below 4.5% for most of the year, averaging around 4% in 2025. The upward pressure will mainly emanate from food and fuel prices as the base effects fade.”

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Retail sales shot the lights out in November

Retail trade sales grew by 0.8% in November, slower than October’s 1.6%, bringing the annual figure to 7.7%, above expectations of 5.1%. Growth was seen across all categories except for hardware, paint and glass.

Matulich says internal trade data paints a mixed picture for the fourth quarter of 2024, with retail sales performing well but wholesale and motor trade performing poorly. “Barring a sharp bounce back in December, wholesale and motor trade are set to contract on a quarterly basis.”

Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say these numbers bode well for fourth quarter GDP growth and reflect consumer spending benefits from the two-pot system pension withdrawals, the declining inflation trajectory, particularly fuel costs, as well as improved consumer sentiment.

Matshego and Nkonki say the jump in retail sales reflects a rise in consumer demand driven by lower inflation. “While the 50 basis points decline in interest rates probably supported consumer sentiment, it was still too early to have materially improved financial conditions.”

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Marginal decline in mining production

Mining production decreased marginally by 0.2% in November compared to October, an improvement from -2.8% previously.

Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano point out that that monthly seasonally adjusted output, which is critical for quarterly GDP calculations, declined by 0.2% after contracting by 2.8% in October. “In the three months to November, mining output was up by 4.0%, suggesting a potential boost to fourth quarter GDP growth, pending the December data print.”

Matshego and Nkonki say mining production fared much worse than they expected in November, but over the three months ending in November, mining production was up by 4% compared to the previous quarter.

“The strong quarterly number reflects the positive impact on mining from electricity availability. Mineral sales at current prices rose by 8.1% and were driven by a sharp increase in the sale of gold. Sales of gold jumped 93.4% and contributed 11.4 percentage points to the total.

Matulich says this brings the annual change to a decrease of 0.9%, well below expectations for an expansion of 0.4%. “A decline in gold production shaved 1.5% percentage points off growth. Barring a steep decline in December, mining should still add positively to gross domestic product (GDP) in the fourth quarter of 2024.”