Cape Town - A sharp move higher in average purchasing price and selling price inflation indicators in the latest Business Confidence Index (BCI) of the Bureau of Economic Research (BER) suggests a wider increase in consumer price inflation in upcoming months, MMI economist Sanisha Packirisamy warned on Sunday.
She pointed out that the underlying survey detail showed a sharp increase in average selling prices in the retail sector - finally following trends observed in the wholesale sector - but measures of profitability deteriorated further.
"Over the past three quarters there has been a distinct disconnect between muted retailer sentiment and relatively firm retail sales growth as captured by Stats SA, leaving us cautious on growth in household consumption expenditure," explained Packirisamy.
"Lower-income earners are increasingly facing higher food costs and the threat of further job losses, well upper-income earners are more exposed to rising interest rates and a slowdown in growth in net wealth creation on the back of recent movements in equity and home prices."
According to the BER, domestic indicators of sales and order volumes dipped further in the first quarter of 2016, with wholesalers and retailers reporting a further deceleration in the growth of orders placed.
"Meanwhile, underlying survey indicators gauging the export industry surprised negatively and point to further downward pressure on nominal manufactured goods exports as captured in the Sars Trade Statistics data," she said.
In her view, domestic business sentiment in SA remains in the doldrums.
She pointed out that the SA Reserve Bank (Sarb) recently confirmed that November 2013 signalled the upper turning point in the SA business cycle, implying that the domestic economy is currently in its 28th month of the current downward phase.
"Stats SA data confirmed a collapse in growth in corporate profits in both nominal and real terms against the backdrop of slowing economic conditions and mounting wage pressures. In nominal terms, growth in corporate profits dipped to an all-time low since the series began in 1994, while real growth has previously dipped into negative territory on three separate occasions," said Packirisamy.
On top of that, the latest Business Confidence Index (BCI) of the Bureau of Economic Research (BER) - which covers the building, manufacturing, retail, wholesale and new vehicle trade sectors - reflects soft economic conditions and an adverse environment for SA businesses to hire extensively or expand on fixed investment projects.
The largest drop in confidence was observed among manufacturers, where confidence slid 16 points lower in the first quarter of 2016, while confidence levels inched higher for the remaining industries.
"Nevertheless, overall confidence levels remained at or below the crucial 50 mark for all of the sectors surveyed pointing to broad-based economic headwinds," said Packirisamy.
Confidence levels for new vehicle dealers increased marginally between the fourth quarter f 2015 and the first quarter of 2016, but remained in negative territory for the eleventh consecutive quarter. While the survey still foresee challenging conditions ahead for new car sales, the BER reported that used car sales were performing relatively well as consumers traded down in the tougher economic climate.
"As for retail, the BER showed that sales volumes indicators for non-durable and semi-durable goods shifted lower, while pre-emptive buying - in light of sharp currency depreciation and the expectation that this would filter into higher prices - supported sales of durable goods. As such, this is unlikely to be repeated in the near term," said Packirisamy.
She added that, in general, although SA is already quite far in the downturn of the current economic cycle, data implies that economic conditions could get worse before they get better.
"We do not expect the economy to expand by more than a 1% this year and close to 1.5% in 2017 with risks remaining to the downside as headwinds to domestic demand escalate. Moreover, a disappointing survey result on manufactured export orders suggests that suppressed global economic conditions and low commodity prices may partly offset the benefit of a weaker currency," she said.