Tuesday, 12 March 2013 11:00

Bad start for Construction Industry 2013

As a sector dependant on economic growth to finance much needed public sector infrastructure investment, and sensitive to business confidence to stimulate private sector investment, the agriculture strike, which has had a national economic impact is not a good start to the year for the construction industry.

Consumer inflation edged up to 5, 7% in December 2012, from 5, 6% in November and is still impacting more heavily on lower income groups due to rising food prices and the weight of food in the lower income basket. According to Stats SA, actual rentals for houses, townhouses and flats increased at below inflation, averaging between 4% and 5% for 2012. Inflation for lower income groups averaged 7%, compared to just 5,3% for the very high expenditure group. This is mainly due to the impact of higher food prices on the lower income population. The disparity between lower and higher income groups is an important consideration in wage negotiations.

Administered prices continue to rally ahead of consumer inflation, remembering that these prices are out of the consumer's control and regulated by government, averaging 9,9% for 2012.

Components that showed significant increases during 2012, include:

  • Private and public transport up by between 14% and 16%
  • Electricity (and other fuels), up 13,6%
  • Tertiary education went up by 9,5%
  • Water and other services increased by an average of 9,2%.

On the upside:

  • The cost of telecommunication equipment decreased by 12,6% compared to 2011.

Considering the slowdown in economic growth and the muted outlook for the economy in 2013, higher inflation is supported primarily by external factors and as such should not have a major impact on the Reserve Bank's decision making in terms of the outlook for lending rates. Lending rates are expected to remain either unchanged or fall by 50 basis points in the next 6 months.

Information supplied by Industry Insights