While August saw progress in the fight against corruption and state capture, other factors such as increasing inflation, high wage growth and a lower rand affected local markets.
August saw several high-profile arrests, as well as updates from the National Prosecuting Authority and Hawks, outlining progress in the fight against corruption and state capture. President Ramaphosa also announced the appointment of nine members from different spheres of society that will form part of the National Anti-corruption Advisory Council (NACAC). These announcements come at a time that the country is under review by the Financial Action Task Force for possible inclusion in the organisation’s grey list.
Poor manufacturing and mining data for June illustrated the detrimental impact of load-shedding, which is further evidence of weaker economic growth in the second quarter. This was reinforced by lacklustre retail sales numbers, partially reflecting the impact of higher prices on consumer spending. Constructively, the quarterly household-based measure of employment from the Quarterly Labour Force Survey showed improvement over the second quarter, although this can partially be ascribed to temporary government employment programmes.
Headline inflation for July reached 7,8% yoy, a 13-year high. While the inflation print was largely in line with expectations, producer price inflation exceeded expectations, increasing 18,0% over the year. A decline in domestic petrol prices in August bodes well for consumers, however, pressures from food inflation and administrative prices, such as electricity and water, are likely to remain a concern. With wage negotiations ongoing across several industries, the South African Reserve Bank (SARB) highlighted the results from the recent Andrew Levy wage settlement survey, which showed the average increase in wage agreements at 6,1%.
This is above SARB’s inflation target range and a big increase from the 4,5% recorded for the first quarter of 2022. Without evidence of accompanying increases in productivity, this is likely to reinforce SARB’s hawkish stance.
After gains early in the month, the local bond market followed global bond markets lower, while the rand depreciated by approximately 2,8% against the US dollar. Local equity markets retraced prior gains in line with global trends, in part due to a loss of 4,1% in the resources sector. The interest-rate sensitive property sector was the worst performing asset class, losing 5,4% over the month.
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