So the
news that CPI inflation slowed down in June to 5,7% from 6,1% has excited many.
The silent prayer that the SARB may drop the repo rate from 5,5% to 5% is
deafening. Perhaps a slowdown in inflation is good for preserving the buying
power of our money especially for the poor whose livelihoods are disproportionately
impaired by runaway inflation.
But hidden
in the numbers are deadly telltale signs that the economy may be coming off the
boil. For example, leading indicators such as retail sales and business
confidence indices point to a lulled macro environment. A slowdown in business
confidence and/or activity bodes ill for the economy in general, but job
creation in particular.
Buoyancy
in economic activity is key to the creation of jobs, if employers believe that
output is above supportive levels of demand, it'll trigger a whole new cycle of
deleveraging and inventory reductions. This means no investment and thus no new
jobs.
The
counter argument is that lower inflation will lead to lower interest rates and
as such higher investment and more jobs. Unfortunately, the evidence suggests
otherwise. For example, the current account deficit widened to 4.9% from 3.6%
on a quarter to quarter basis. This suggests higher net cash outflows from
portfolio investments and perhaps higher net imports. Both don't augur very
well for the country as they suggest both capital flight and a failure in
domestic factor markets.
Furthermore,
global crude prices have been moderating for a few months now and are currently
below US$80 a barrel (an eight month low). This suggests a poor global economic
outlook and lower economic activity in significant parts of the world (US,
Europe and China). South Africans may be paying 55c/litre less at the pumps,
but evidence suggests that there may be fewer of them visiting the pumps.
Sadly, the
jobs outlook remains desperately negative. There's no sign that an economic
miracle is on the cards in the near term to raise hopes or prospects of higher
employment levels.
