00:00How critical do you think it was for the SARB to really preempt any sort of increased inflation that we're
00:07seeing?
00:07What did you make of what we heard from the governor and also from what the committee decided on?
00:15Thank you, Jen, and good morning to everyone. It was something that we expected needed to happen.
00:21We have certainly been worried about this recurring oil momentum and what seems to be something that is starting to
00:30create a persistent cycle in certain parts of the inflation spectrum.
00:35And more specifically, what the Reserve Bank now has accentuated is that there's a growing concern globally that inflation pressures
00:45are becoming more persistent.
00:46When you look at this, what's now dubbed as almost a synchronized global tightening in policy rates, it is creating
00:55a different set of circumstances and risk for the Reserve Bank if they ignore it.
01:00So in the real details of the forecasts, we now see them looking a lot more like our forecast.
01:09At least we are predicting in Q4 and Q1 of next year, inflation already above 5%.
01:16And that could potentially get worse if we're starting to see renewed momentum on RAND weakness.
01:23That has, you know, bobbed and weaved between 16.30 and 16 to the dollar over the last couple of
01:30weeks.
01:32But notwithstanding that, the risk really is becoming something that is also much broader.
01:38Global debt markets are picking up a clear sense of negative momentum.
01:44The AI infrastructure that's been built up has also been funded by debt.
01:49And so as a consequence, the Saab governor tuned into that.
01:54And I think when you look at the forecast, the forecast in the model suggested that they needed to keep
02:01rates unchanged.
02:02However, this time, pulling a little bit ahead of that is, again, that insurance type hike that one would expect
02:09when conditions start looking less favorable for them.
02:13So, Danalee, do you then agree on the timeline for inflation ticking up to 5% or do you perhaps
02:20think it might occur a little bit further down than what the Saab is anticipating?
02:28We certainly agree that there's a near-term risk, that the buildup of inflation pressure going into the fourth quarter
02:37is also quite a function of the oil price and diesel refining margins.
02:42So, we anticipate fairly large, you know, fuel price adjustments to come through next month.
02:50And that does create an unwanted momentum.
02:53You're typically moving into a period where retailers tend to try and price up.
02:58And this is a difficult time because consumers are not all, you know, sitting on healthy balance sheets.
03:05So, that remains to be seen just how strong that pricing power is.
03:09And then something that struck us a little bit in the Reserve Bank's forecast were really the extension of core
03:18inflation pressure.
03:19They have typically revised these very incrementally because we haven't seen evidence of any second-round effects up to now.
03:30And it seems like the Reserve Bank is starting to build that up a little bit more clearly.
03:35And food inflation, the Reserve Bank took up to, in the second half of the year, to touch 5%.
03:42And that on the basis of the fertilizer cost increases, higher fuel prices.
03:47And so, the worrying thing is that if they are correct and you actually do start seeing an El Nino
03:55effect on top of these food prices,
03:57then we might be sitting with materially higher inflation.
04:01I feel it's a little bit earlier or too early to judge yet on the pass-through cost.
04:08I think that it seems like confidence in the agricultural sector has really been well supported.
04:15And it's too early to really comment on whether there's going to be cost-push pressure as a consequence of
04:23this fertilizer shock and fuel prices in the agriculture sector.
04:27Right. And, Danalee, just finally, what does that mean then for growth in South Africa, especially because in Q2 we
04:34did see the economy contracting?
04:36What is your outlook then?
04:41And the details for GDP is somewhat mixed.
04:45We actually had a fairly resilient household consumer in the second quarter data.
04:51And when we look at the details, the GDP for the second quarter was really driven by a significant spike
04:58in imports.
04:59And those imports reflect partly the CapEx demands that are coming through in the economy.
05:04But naturally, there was also higher mineral requirements.
05:07So the oil shortage led us to import and hedge ourselves from a supply perspective.
05:13So it's not clear to us that this weakness will be extended.
05:17We do actually see that growth is likely to rebound.
05:21We're slightly below the Reserve Bank's forecast for Q3.
05:24I recall they have mentioned something along the lines of 0.3 or 0.4.
05:30We are about half of that.
05:33But notwithstanding that, we are a little bit more concerned about next year.
05:37Despite the fact that we are seeing, you know, a global resilience,
05:44we think that growth is likely to stay closer to 1.3, 1.4 percent next year.
05:50I hope that's one permettant of opening comments.
05:50That's a good one.
05:50Right there.
05:50That's a good one.
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