Mixed bag with fuel price set to fall



02-09-2014
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IOL Business Report
Source

Christmas will come early for indebted consumers tonight when the petrol price falls 67c a litre.

This is attributable to a drop in crude oil prices, with the rand-dollar exchange rate having exerted upward pressure of 1c a litre due to the rand’s depreciation of 2c to R10.68 over the measurement period.

An economist said the reduction in the petrol price ought to enable the headline consumer inflation rate to fall back within the inflation target range by mid-October.

“This must surely relieve some of the pressure for the Reserve Bank to raise interest rates further. Whether this [is] a one-off… as many people believe or [whether] fuel prices remain subdued is unclear at this stage,” he said.

It seemed the major oil producers were attempting to keep the international price of crude oil relatively stable by manipulating their production in either direction to accommodate fluctuations in demand. If this was the case, fuel prices might remain at current levels for longer than was expected.

Alex Smith, a First National Bank economist, said last week’s news flow was a mixed bag for South Africa.

As anticipated, the monthly trade deficit widened considerably in July to R6.89 billion from a revised R0.47bn in June, previously reported as R0.19bn.

The trade shortfall for July was driven by a 14.7 percent month-on-month rise in the value of imports, while export growth was up 6.8 percent.

Higher import demand was due to a strong rebound in demand for mineral products (mostly oil), chemical products, machinery, cars and equipment.

“Meanwhile, export growth was supported by larger shipments of vegetable products, precious metals and stones, as well as mineral products, mostly coal. The fact that the platinum sector strike ended in June allowed for a decent rebound in precious metals exports, and this can be expected to continue over the coming months as production is increased further,” Smith said.

The central bank’s leading business indicator rose 0.5 percent in June to 100.1 and was up 0.2 percent on an annual basis.

The largest positive contributions came from an increase in manufacturing and in the average number of hours worked in the manufacturing sector.

Major negative contributions came from a drop in residential building plans passed, followed by a deceleration in the 12-month percentage in job advertisement space.

In the second quarter the economy grew a marginal 0.6 percent quarter on quarter, seasonally adjusted and annualised, narrowly avoiding a recession after a contraction of 0.6 percent the previous quarter.

Producer inflation eased to 8 percent from 8.1 percent in June and was expected to continue declining. This was marginally higher than the 7.9 percent consensus forecast.

The rate of private sector credit extension grew at an 18-month high of 9.8 percent (annualised) in July. Smith said the rebound was off a weak base in July last year. There was significant 16.3 percent year-on-year growth in corporate advances.

“Household credit grew at a new four-year low of 4.1 percent year on year. The divergence between household and corporate credit extension has been growing over the past year. Household credit extension has been under pressure due to slowing unsecured [credit] growth and, in particular, personal loans.”

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