Source: Natale Labia , Daily Maverick, 13 January 2022, photo credit: 123RF/wirestock
The outlook, as usual with South Africa, looks binary. By the end of 2021 the SA economy was, on the back of surging commodity prices, current account surpluses, lower than expected debt-to-GDP and materially positive real yields, the most investable it has been for years.
Despite the temptation at this time of year to try and ordain what may transpire over the next 12 months, it remains a futile exercise. However, it is helpful to reflect on what have been some of the critical macroeconomic dynamics over the past few months, and to consider which ones may be important over the next few.
It makes sense to start in the US, where the most compelling conundrum continues to be inflation, and how the Federal Reserve will react to data throughout 2022. On the supply side, according to the New York Fed’s new gauge of supply side data, some bottleneck constraints are easing, but many are not, with current readings at record highs as post-lockdown blockages persist. Likewise, excess demand in the US seems equally persistent with strong wage growth and tight labour markets, which in turn have amplified supply-side fragilities.
It would seem therefore that inflation could remain persistently and frustratingly elevated through 2022. This is notable for many reasons, not least among them that these levels of inflation have not been experienced in the US for around 40 years, when interest rates were above 15%. However, as ever, what is more important than the level of inflation is where it goes in relation to expectations.
Currently the market is buying the Fed’s assumption that the tapering of the QE asset purchase programme and three planned interest rate hikes this year will result in a deceleration of inflation from the end of the first quarter and into the second, on the back of rapid opening up of supply-side constraints and moderating demand growth.
The South African Pork Producers’ Organisation (SAPPO) coordinates industry interventions and collaboratively manages risks in the value chain to enable the sustainability and profitability of pork producers in South Africa.
