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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2014-11-28

On 20th November the newly appointed Governor of the Reserve Bank - Lesetja Kganyago, published his first Monetary Policy Committee statement, following their meeting, which is scheduled every two months. Lesetja Kganyago recently took over from Gill Marcus as Governor and if you were wondering about the credentials of the new Governor you should look at his CV.


A master in economics from the London School of Economics, degrees from Wits Business School and Harvard, together with experience at the likes of JP Morgan, IMF, World Bank and The National Treasury. It seems that one thing we are blessed with in South Africa are exceptionally well qualified Finance Ministers and SARB Governors.The good news is that the key repurchase rate administered by the Reserve Bank was kept at 5,75% citing the lower trajectory of headline inflation and the continued weak state of the economy as reasons to keep this key interest rate unchanged. Your prime mortgage rate will therefore remain unchanged at 9,25%.


The October 2014 figure for our headline CPI inflation rate was 5,9%, just slipping in under the 6% upper limit target range set by the Reserve Bank. Given a fragile global economy and the propensity of governments to try and spend themselves out of a recession, our Reserve Bank has done remarkably well to contain inflation within the 3%-6% range. Some mitigating factors in driving our inflation down have however originated externally, out of the influence or control of the Reserve Bank. International oil prices have declined from their peak in June of US$115 per barrel to currently US$80 per barrel. This is a dramatic 30% decline or improvement. This is what is called a positive external shock and we are feeling the benefits directly and immediately.


For an oil importing country such as South Africa this change feeds immediately into an improvement in our inflation rate as so many components of our typical basket of goods and services are affected by the price of fuel. So why has the oil price declined? The Reserve Bank's report points to increased supply from the US and Libya, moderating demand from China and changes in the internal dynamics within the Opec cartel. The lower oil prices are expected to persist for some time. Our domestic petrol prices have declined by a cumulative R1,17 per litre since August and could decline by a further 70 cents per litre in December.


Good news for those driving down to their coastal holiday homes from Pretoria and Gauteng over the next few weeks. Our food price inflation has become the major driver of our inflation and has moderated to 8% in October, largely due to lower producer prices of crops and cereals which declined by 6,3% in September. The national Producer Price Index (PPI) is currently at 6,9% (last measured as at September 2014) and on a strong downward trend from its recent peak of 8,8% in April 2014. Because producer prices feed into consumer prices you cannot have consumer prices moving out of tandem with producer prices.


By watching the producer prices carefully we can also get a good indication of the future direction of consumer prices. As we head into our Christmas holiday period we can expect a season peak in retail sales. These typically rise by 30% and can add an additional R20bn in retail sales over the month of December. Interesting the sales of Food and Beverages by Restaurants, Caterers, Take-away outlets and Coffee Shops is expected to add an additional R1bn according to StatsSA. Although this type of spend puts pressure on relative prices it is not expected to affect absolute prices or CPI inflation over a given period.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.


Andreas Wassenaar

Seeff KZN Chairman

Principal - Seeff Dolphin Coast

andreasw@seeff.com