High commodity prices push SA’s economic transactions to record high

South Africa’s economic activity boomed in February 2022 as commodity prices soared in stark contrast to the below inflation interest rates.

“The BETI for February reached a record high of 131.1 index points,” says Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements. “On a monthly basis, the BETI was 2% up from January and a 4.3% growth from February 2021.”

The threat of war between Russia and Ukraine drove up oil and wheat prices. Gold and the other main South African export commodity prices have also benefitted from the increased demand. Meanwhile, the phenomenal growth in world commodity prices - leading to the higher volume of foreign money flowing into the country - has made up for South Africa’s inability to deliver coal at full capacity.

Economic activity, as measured by the BETI, reached the third-highest value ever.

“The standardised nominal value of transactions stood at R1122.4 billion in the February BETI,” says Naidoo.

Another record broken for February was the total number of transactions reaching 120.9 million. The average value per transaction of R8 765 was 1.1% higher than in February 2021. This may indicate that consumers were cautious spenders as the deflator used was 7.3%*.
Amid the soaring commodity prices, real interest rates have been falling to encourage borrowing. However, new borrowing from the household side of the economy has not reached its full potential.

“It appears the economy is racing ahead, and the South African Reserve Bank is understandably behind the curve in raising rates to fight inflation,” says Mike Schüssler, Chief Economist at Economists.co.za.

The extra money flowing into the SA economy will not be sustainable. When the war ends, the economy will face falling commodity prices for local export products.

“For now, consumers are facing an uphill battle with the climbing fuel prices,” says Schüssler. “But even this is a sign of a slowing economy that will become even more obvious in the coming months.”