The SA Daily
20 November 2019
GDP needs more than a cut
- Consumer inflation for October is due out this morning; we expect a moderation to 3.8% y/y (4.1% y/y in September), with a likely average of 4.2% for 2019 and 4.6% for 2020.
- In 2016, consumer inflation averaged 6.3% as bad weather had swelled food inflation. But, inflation has since settled within the SARB’s target range, at an average of 5.3% and 4.6% in 2017 and 2018 respectively. This year thus far, consumer inflation has averaged 4.3%. The likely moderation in October, alongside persistently subdued domestic demand and global monetary policy easing, should therefore support a 25 bps rate cut tomorrow.
- For the SA economy to achieve higher growth when inflation is low and stable, such as it is now, economic reforms to remove structural bottlenecks must be implemented. In other words, rate cuts, in the absence of reforms, can only do so much. We’d therefore expect rates to be kept on hold 2020-2021, after the expected rate cut tomorrow.
- Interestingly, consumer inflation has remained low and stable, particularly in the latter part of the current inflation targeting monetary policy framework. From 1981-1999 (before inflation targeting), consumer inflation averaged 12.2%; from 2000-2018 (within the current inflation targeting monetary policy framework), inflation averaged 5.7%, accompanied by reduced inflation volatility as measured by the standard deviation between these two time periods. From 2000-2018, real GDP growth averaged 2.8%; from 1981-1999, it averaged1.6%.
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