Credit growth continues to climb.

[Dave A]

It look likes the demand on credit is not exactly over. However, there seems to be a change in shape - less mortgage finance, more vehicle and business finance.

The growth in South Africa's private sector credit extension data for September was the highest rate of growth in about 17 years and is cause for concern as it has implications for inflationary pressures, according to economic analysts RLJP.

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The researchers add that the month-on-month growth in leasing finance remained unchanged at 2.0 percent from August, showing that consumers were continuing to buy cars on credit.

RLJP say that month-on-month growth in mortgage advances declined for the second successive month, although at 2.0 percent growth, it is still "very high".

They add that month-on-month growth in the "other loans and advances" section, however, shot up by some 4.2 percent, or around 16.6 billion rand higher than in August.

"This section is a proxy for borrowings by business to fund import and export flows, and the jump in borrowing reflects the fact that exporters might have been squeezed during September. Normally, exporters would borrow when the rand is strong, repatriating foreign exchange when the rand weakens.

However, the rand weakened through September, suggesting that exporters' had low levels of operating cash and they were forced to borrow," say the analysts.
full story from Business Report here

[Dave A]

On the flip side, the trade deficit is down - big time.

South Africa recorded a deficit of R175-million for its trade with non-Southern African Customs Union trading partners in September after a deficit of R5,284-billion in August, according to Customs and Excise figures released on Monday.

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Mike Schussler, economist at T-Sec, said: "It's only a R175-million deficit, and that's amazing after the big deficits we've had recently. It will be good for the rand and good for the bond market.

"It's a much smaller deficit than most people would have thought. The other thing is one must take trade figures with a pinch of salt because monthly they do vary quite a lot."
full story from M&G here

[duncan drennan]

Now what confuses me is why this happens

Is it because there was some distorting factors over the last couple of months, or is this months figure distorted by something else??

[Graeme]

Some of it may have to do with not all the figures being in yet - the deficit may have been understated because of incomplete data. What is not on this month may get piled in to next month - wait and see what next months figures look like.

[Dave A]

Some of it may have to do with not all the figures being in yet - the deficit may have been understated because of incomplete data. What is not on this month may get piled in to next month - wait and see what next months figures look like.

Wise words indeed. And the numbers are in... Surprise

Customs and Excise figures released at 14:00 showed that South Africa recorded a deficit of 12.943 billion rand for its trade with non-Southern African Customs Union trading partners in October after a deficit of just 175 million rand in September.

The major contributor to this was mineral imports, which increased by 9.419 billion rand.

South Africa's foreign trade balance was expected to have widened to a 2.775 billion rand deficit in October, a survey of ten economists by I-Net Bridge found.

A previous record 7.746 billion rand deficit was recorded in July.
from Business Report here

Bottom line - taking the two months together we've averaged about R6 billion which is still better than the R7+ billion we were at - plus it seems we've been doing some stockpiling on oil.

I don't know what the financial crystal ball gazers were smoking - they obviously believe in miracles. Speeding trains just don't turn around that quickly.

[Dave A]

A bit more detail on the nature of the deficit in a financial update email I get daily, as well as news on PPI.

Producer price inflation which hit double figures and a record trade deficit have made a rate hike next week almost a certainty.

South Africa's factory gate inflation accelerated to 10.0% in the year to October from September's 9.0%, official data showed.

"That's (PPI) a massive figure, far above what the market expected. It certainly cements the case for a rate increase next week, and raises the probability for another rate increase early next year," said Noelani King Conradie, economist at NKC Consulting.

Meanwhile, the shock increase of South Africa's foreign trade deficit to a record R12.943bn was mainly as a result of a significant month-on-month increase in imports of mineral products due to further shut-downs of refineries as well as some stock-piling of inventories, the South African Revenue Service (SARS) said.

SARS said that a discount of the significant mineral imports trade would reduce the current month's deficit from R12.9bn to just R3.5bn "which was a figure within range of market expectation of -R3bn".

"Imports of mineral products, particularly crude and petroleum oil, have played a significant role in the volatility of trade data."

Economists said that not only does the trade deficit number reinforce the argument that interest rates will rise in December but that rates will also go up after that.

The Reserve Bank will announce its interest rates decision on December 7.

[duncan drennan]

You can get the credit breakdowns from FNBs economics website,

https://www.fnb.co.za/economics/servlet/Economics?ID=2822

[Graeme]

As you say, a lot of the huge increase was bound up with a catch-up surge in the value of oil imports in October as a result of a shutdown of refineries in September and because of inventory stockpiling to guard against the fuel shortages that plagued the country during the festive season last year - to the great embarassment of the Government. But with oil imports greatly up to cover September's refinery shutdowns, and the Holiday season stockpiling, November should see a corresponding reduction?

[Graeme]

And then there is also the aspect of South Africa's monthly payments to member countries of the Southern Africa Customs Union of amounts collected by SA on their behalf. These are substantial - and are not really an outgoing, but are treated as such by the Reserve Bank.

Nothing is simple when it comes to balance of payments calculations.

[Dave A]

Well. Some good news.

South Africa's consumer price index excluding mortgage rate changes (CPIX) for metro and other areas, which is used by the South African Reserve Bank (Sarb) for its inflation target, is up 5.0 percent year-on-year (y/y) in November after a 5.0 percent y/y increase in October, Statistics South Africa (Stats SA) says.

CPIX is down 0.1 percent month-on-month (m/m) after it increased by 0.1 percent m/m in October.

Headline consumer prices - the 12-month rate of change in the consumer price index (CPI) for metropolitan areas - is up 5.4 percent y/y in November from a 5.4 percent y/y increase in October.

The core inflation rate, which excludes volatile foods, municipal rates and monetary policy changes, is up 3.4 percent y/y in November from an increase of 3.3 percent in October.

Consumer inflation excluding interest on mortgage bonds (CPIX) - the measure used by the South African Reserve Bank (Sarb) for its inflation target - is expected to increase to 5.2 percent, an I-Net Bridge survey of 10 economists found.

All of the economists surveyed expected a year-on-year increase in CPIX after it had receded to 5.0 percent in October from 5.1 percent in September. Forecasts ranged from 5.2 percent y/y to 5.5 percent y/y, with 60 percent of the economists surveyed expecting CPIX inflation to reach 5.2 percent in November.

The Sarb inflation target range is from 3 percent to 6 percent y/y and November is the sixth consecutive month that CPIX has been above the mid-point of the target range.

Before this, only five releases were above the mid-point of this range since January 2004.

Headline inflation - the percentage change in the consumer price index (CPI) - was expected to have increased to 5.7 percent y/y. Forecasts ranged from 5.6 percent to as high as 6.0 percent.

A year ago CPIX was at 3.7 percent and CPI at just 3.4 percent.

Stats SA said the annual increase of 5.0 percent in the CPIX for the historical metropolitan and other urban areas was mainly due to relatively large annual contributions in the price indices for food (+2.3 percentage points), housing, excluding interest rates on mortgage bonds (+0.6 of a percentage point), medical care and health expenses (+0.6 of a percentage point), education (+0.4 of a percentage point), fuel and power (+0.3 of a percentage point), transport (+0.3 of a percentage point), alcoholic beverages (+0.2 of a percentage point), household operation (+0.2 of a percentage point) and personal care (+0.2 of a percentage point).
from Business Report here

[Dave A]

Now here's a headline you don't want to see:

Big deficits may become normal for SA
Despite the trade deficit for November moderating down to R10.5 billion from October's massive R12.9 billion deficit, the figure has come as a surprise to analysts who say South Africans may have to get used to a high deficit for some time to come.

The market forecast for the November deficit was just R3.250 billion.

"With the growth in imports of machinery and transport equipment continuing strongly on the back of increased fixed investment and infrastructure development, we may have to get used to seeing a growing trade deficit and stable rand environment for quite some time to come," said independent economic analysts RLJP.

A closer look at the data does reveal that, as was the case in October, a trade deficit of an order of magnitude this large can be largely explained by heavy oil imports in the drive to shore up inventories in the face of some refinery closures.

Therefore while the South African Revenue Service (SARS) reported a R2.6 billion month-on-month (m/m) decline in mineral imports to R11.1 billion in November, this trade category remains strongly in deficit.

"Even if the anomalous oil imports are excluded, however, November's overall trade deficit would have been in the region of 6-8 billion rand, higher than the market consensus, and well above most monthly deficits in 2006," said RLJP.
from Business Report here

Is this oil or are we on a slippery slope?