March BETI may predict increasing inflation trend

A decline in the March 2015 BankservAfrica Economic Transaction Index (BETI) against February’s report, shows the volatile nature of South African economic activity. The average nominal value per transaction via the South African banking system increased year-on-year by 11.3%, the highest percentage since August 2004. This could indicate underlying inflationary pressure felt by the South African economy.

“However, it should be noted that the index still increased, albeit at a slower rate on a year-on-year basis,” explains Dr Caroline Belrose, Head of Fraud and Data Analytics at BankservAfrica.

“Electricity outages and higher prices in March put pressure on the country’s economy,” says Mike Schüssler, Chief Economist at Economists dotcoza. “The fuel price increases in March likely forced consumers to fill their tanks in February to try to maximise savings on fuel.”

The information indicates that larger transactions - rather than a greater number of transactions - are driving the South African economy. Some of this may be due to overall price increases but may also show a shift to business-to-business transactions, rather than consumer transactions. The BETI has been known to predict an increasing inflation trend and this may be case here.

The monthly decline in the real, seasonally-adjusted overall transactions is marginal. It undermines the more positive trend in the last few months and suggests that the increasing fuel prices have a large influence on overall economic activity, particularly in the land locked parts of the economy.

A sign that the economy is perhaps slightly healthier is the fact that debit transactions equate to only 10.2% of credit transactions - the smallest since the start of the BETI. This dovetails closely with the small increase in private sector credit over the last few years. This shows a reluctance to take on new payment commitments by both consumers and businesses, and fewer debit orders mean that more money becomes available for other spending and that may just help the economy at a later stage.

However, the average debit transaction has increased in size by 5.9% again indicating possible underlying inflationary trends in the economy. It could also show that business debits are increasing faster than consumer debit growth.

“The relationship between the BETI and economic growth is the primary one, and here the small decline in the BETI lessens the impact of the growth seen in the first quarter GDP. No monthly change on its own can be taken as a change in trend, but the slight decline does enough to sow a little doubt about the strength of the overall trend,” says Schüssler.

While other figures are either nominally positive or slightly negative, the BETI indicates that for economic transactions - while still positive on both a yearly and quarterly basis - slow growth remains the most likely outcome for the year.

“The BETI standardised transaction values for workdays reached its highest level ever, not including the festive season spending in December,” says Belrose. “The value of the standardised transactions going through the South African payment system was 689.6 billion or about R23 billion a day.”

The standardised nominal growth was 5.4%. This overall rate of change also declined however it still remained above inflation.

Like the world economy, the South African economy has clearly slowed at the end of the first quarter but it is still growing, and the transactions - while changing in average value - are also still positive overall. A better first quarter alone, given the decline of the first quarter of 2014, should make 2015 better than 2014.