May 2024 Economic Review

US inflation slowed in April and was outpaced by the national wage figure. Japan’s April inflation also slowed, consistent with the trend in other major economies. The Bank of Japan (BoJ) is considering hiking rates again after its March hikes to combat deflation. Consumer confidence in the US improved, with more consumers being positive about the stock market. Sweden cut rates in May and is expected to continue with rate cuts if inflation pressures subside in the remainder of the year.

In SA, President Cyril Ramaphosa signed the National Health Insurance (NHI) Bill into law in May, hoping to make healthcare affordable for all citizens. South African elections took place in May, resulting in the ANC losing its majority. It will need to enter into a coalition with one or two parties or create a government of national unity. SA’s unemployment rate increased again in Q1 2024 after increasing in the previous quarter, and the youth unemployment rate also rose over the same period.

US inflation eases to boost the US Fed

US inflation eased slightly in April, with the CPI at an annual rate of 3.4%, down from an annual rate of 3.5% in March. In May, the Bureau of Labour Statistics (BLS) reported that rising housing and fuel costs were the two biggest factors behind April’s price increases. The index for shelter and gasoline contributed over 70% of the monthly increase for all items. The shelter portion of the CPI jumped 5.5% year-on-year (y/y) and gas prices gained 2.8% y/y. Food prices were flat and egg prices dropped sharply at 7.3% over the month. Core CPI (which strips out volatile food and energy prices) rose 0.3% in April, down from 0.4% in the previous three months.

US President Joe Biden has indicated that fighting inflation and lowering costs are his top economic priorities and although the economy has made progress, he said there was a lot more to do. Interest rates in the US are still at a 22-year high of 5.25-5.5% and stubborn inflation has prompted the US Federal Reserve (US Fed) to push back expectations of rate cuts in 2024. Fed Chair Jerome Powell said the central bank preferred to keep interest rates high until inflation slowed to the 2% target on an annual basis, rather than risk cutting too early and fuelling another period of price hikes. He reiterated that he expected inflation to ultimately reach the target but acknowledged that his confidence had weakened after three months of elevated readings.

Although US inflation is high, wages are continuing to outpace it. The BLS reported an average wage growth of 3.9% compared with the 3.4% CPI figure. According to the Council of Economic Advisers, the combination of a tight labour market and slowing inflation has helped to boost inflation-adjusted wages on a yearly basis. Real wages are up 0.5% over the 12 months to April 2024, the 12th consecutive month of y/y positive real wage growth.

Source: Bureau of Labour Statistics, Council of Economic Advisers, May 2024

Japan’s core inflation slows

Japan’s core inflation slowed for a second straight month in April, when CPI (excluding volatile fresh food prices) was 2.2% compared with 2.6% in March. This was largely attributed to an easing in the price pressure of food and services. Core-core CPI (regarded as a better reflection of underlying price trends, as volatile energy and fresh food prices are excluded) ended April at 2.4% after increasing by 2.9% in March. Weak inflation has slowed since its peak of 4.2% in January 2023, but remains higher than the BoJ’s 2% target. The BoJ has continued its ultra-loose monetary stimulus policies designed to banish deflation from Japan’s economy.

The BoJ will be patient in raising interest rates as consumption remains fragile. Higher prices are one of the major factors behind weak consumption, causing the economy to shrink for the first time in two quarters in Q1 2024. Inflation is tracking comfortably above the central bank’s 2% target, but policymakers are keen to see Japan’s prices rise on domestic demand. While other central banks are looking to cut rates, and some have cut already, the BoJ hiked rates in March as wages jumped after consumer prices rose. Inflation data is seen as key to further decisions on rate hikes by the BoJ, which wants to push interest rates higher. This follows a gradual ending of negative rates in March as the bank has shifted away from a decade-long super-easy monetary policy.

Source: LSEG Datastream, Reuters, May 2024

For your interest

1. US consumer confidence recovers in May

• US consumer confidence unexpectedly improved in May, after deteriorating for three straight months, amid optimism about the labour market. The Conference Board said that its consumer confidence index increased to 102.0 this month from an upwardly revised 97.5 in April.
• A survey by the Conference Board showed that more consumers believed that the economy could slip into recession in the next 12 months, however, they are still positive about the stock market and more planned to buy major household appliances over the next six months.

(Source: Reuters, May 2024)

2. Eurozone inflation increases in May

• Statistics agency Eurostat reported a rise in the Eurozone’s headline inflation to 2.6% in May. Economists polled by Reuters forecast a 0.1% increase from April’s headline figure of 2.4%. Core inflation, excluding the volatile effects of energy, food, alcohol and tobacco, increased to 2.9% from 2.7% in April.
• Looking at the main components of Eurozone inflation, services is expected to have the highest annual rate of increase in May (4.1%, compared with 3.7% in April), followed by food, alcohol and tobacco (2.6%, compared with 2.8% in April), non-energy industrial goods (0.8%, compared with 0.9% in April) and energy (0.3%, compared with -0.6% in April).

(Source: CNBC, May 2024)

3. Sweden’s central bank cuts interest rates

• As expected, Sweden’s central bank cut its key interest rate to 3.75% from 4% in May, and said it was likely to cut the rate two more times in the second half of the year if inflationary pressures remained mild.
• After a two-year hiking cycle, central banks around the world are weighing when to start easing monetary policy. But the timing is proving tricky as rate-setters assess geopolitical tensions and fret over getting inflation back to target levels.

(Source: Reuters, May 2024)

4. SA’s President signs the NHI Bill

• On Wednesday, 15 May, SA’s President Cyril Ramaphosa signed into law a bill that aims to provide universal health coverage, hailing it as a major step towards a more just society. This occurred two weeks before an election that was expected to be fiercely competitive.
• The National Health Insurance (NHI) Act – initially tabled in Parliament in August 2019 – aims to correct a two-tier health system, in which a publicly-funded sector that serves 84% of the population is overburdened and run down, while a few people are able to access better treatment through private insurance.

(Source: CNBC Africa, May 2024)

5. South African elections and their outcomes

• The South African elections took place on Wednesday, 29 May. President Cyril Ramaphosa said the final announcement of the 2024 National and Provincial elections results represented a victory for democracy, constitutional order and for all the people of SA.
• President Ramaphosa emphasised that all parties must work in partnership with each other and with society more broadly, to build a country that is inclusive, united, and prosperous. “As we take up our seats in Parliament and in the provincial legislatures, let us appreciate that the seats we occupy do not belong to us, [but] they belong to the people. Whatever authority, whatever power we are entrusted with, must be exercised to advance the interests of the people,” President Ramaphosa said.

(Source: SA Government News Agency, May 2024)

SA’s unemployment rate increases

SA’s unemployment rate rose for the second quarter in a row to 32.9% in Q1 2024 from 32.1% in Q4 2023. The nation is also grappling with a high youth unemployment rate: for individuals aged 15-24 it was reported at 59.7% and for youth aged 25-34 it was 40.7% in Q1 2024. The SA Quarterly Labour Survey’s results indicate that the number of employed increased by 22 000, taking the employment figure to 16.7 million in Q1 2024. The survey also recorded the largest increases in employment in the following sectors: trade (109 000 jobs added), manufacturing (99 000 jobs added), private households (44 000 jobs added), and transport (39 000 jobs added).

While the number of employed people increased in Q1 2024, the number of unemployed people increased by 330 000, taking the unemployment figure to 8.2 million. Decreases in employment were recorded in community and social services, construction, finance, and utilities. An individual’s chances of landing and keeping a job are also greatly influenced by their level of education. Compared to those without matric, those with tertiary education have a greater chance of transitioning from unemployment or inactivity into employment. According to StatsSA, collaboration between the government, private sector, and civil society was essential to create an enabling environment for youth employment. Policies promoting entrepreneurship and small business development can empower young people to create their own opportunities.

Source: StatsSA, May 2024

Market overview

Global overview

Global equity markets bounced back strongly in May after a disappointing April, delivering the strongest monthly performance for 2024 to date. The MSCI World Index ended the month positively at 4.47% in dollar terms. Nvidia contributed one-fifth of the MSCI’s May performance as its share price has more than doubled in 2024 after rallying in 2023. Emerging Markets (EM) also had a positive month, with the MSCI EM Index ending May at 0.59% in dollar terms. Global bonds and global property were both in positive territory, at 1.31% month-on-month (m/m) and 3.47% m/m respectively in dollars. The FTSE Index was positive at 2.41% m/m in pounds sterling and the S&P 500 was positive at 4.96% m/m in dollars. The Dow Jones ended the month at 2.58% in dollars, the EuroStoxx 50 at 2.42%, and the Nikkei was also in positive territory, at 0.21% for the month.

Local overview

South African equities recorded their third consecutive positive month in May as the FTSE/JSE All Share Index ended at 0.96% despite a post-election wobble. The bond market was positive, with the FTSE/JSE All Bond Index at 0.75% m/m. Bonds of 1-3 years gained 1.03% m/m, bonds of 3-7 years gained 0.88% m/m, bonds of 7-12 years gained 0.74% m/m, and bonds of over 12 years gained 0.58% m/m. Industrials ended the month positively at 2.12%, with Resources at 0.98%. Local property and cash were both positive at 0.16% m/m and 0.7% m/m, but financials were in negative territory at -0.12% m/m. The rand strengthened by 0.04% m/m against the US dollar but weakened by 1.46% m/m against the euro, 1.61% m/m against the pound and 0.14% m/m against the Japanese yen.