The MSI, at 144.6 (base = 100.0 in May 2002), is up 4.7 points (3.4%) from its second quarter reading of 139.9, making up is decline from the first quarter to the second quarter. This is against a backdrop of increasing food inflation (12.3 % year on year in October – especially vegetables at 26% and grain products at 17%) and three consecutive fuel price increases (up 27% since December 2006 and 7% since May 2007). The increase in South Africa's consumer price index excluding mortgage rate changes (CPIX) for metro and other areas, used by the SA Reserve Bank (SARB) for its inflation target, was up 7.3 percent year-on-year in October (CPI was up 7.9%). There have been seven consecutive prime rate increases, each of 0.5%, since mid-2005.
However, the MSI is down 1.7 points (-1.1%) from the same time last year. Two components
The MSI comprises two components: one examines how people are feeling about their economic circumstances (prices, economic circumstances, availability of jobs and business conditions) now; the other looks at their expectations of these same circumstances six months into the future. The figure for the current
component rose 6.1 points from 171.2 in the second quarter to 177.3 in the last quarter, making up much of its first quarter losses to end the year 3.5 points (1.9%) down on this time last year. The figure for the future expectations
component rose from 129.8 in the second quarter to 134.1 (a rise of 3.3%) to close 1.8 points down on this time last year (-1.3%).
The rise in the current
component for the last quarter over the second quarter 2007 is due largely to feelings that people economic circumstances are better than in the second quarter, and that business conditions are good at present.
In the expectations
component, perhaps surprisingly, there is a strong optimistic sentiment around income and economic circumstances improving in the next six months after a decline in optimism mid-year. However, there are concerns around inflation not decreasing.
Compared with this time last year, the main dynamics are serious concerns around inflation and some concerns over business conditions in 2008, as well as concerns over unemployment. Who changed?
With May 2002 as the base of 100, the table below shows how sentiment has changed:
- Amongst whites, after a record high of 137 in May 2006, there was a sudden decline in August 2006. There was a recovery until March 2007, a decline in May 2007 but a recovery back to 134 to end the year.
- For blacks, after a record reading of 157 in November 2006, the Index is down 11 points.
- The MSI for coloureds peaked in November 2006 at 152, dropped sharply in the first half of 2007 and has partially recovered to 143. The Indian/Asian figures are more variable but are at an all-time high in the latest reading.
The end of 2006 showed record highs in the MSI. The Index declined for two consecutive quarters in the first half of the year, although, to keep it in context, it has run in the same broad range since mid-2004. However, there has been a good recovery in the last quarter of 2007. There are significant concerns about business conditions next year and about inflation though people remain optimistic about their own economic circumstances at present. The concerns about inflation will be fuelled by the recent interest rate increase, the current CPIX figures having remained outside the Reserve Bank's target range for the whole of 2007, by food inflation and by fuel prices.Background to the MSI
“Sentiment” is said by many to be one of the key drivers in many markets – financial, consumer, durables, the stock market and so on. TNS Research Surveys (Pty) Ltd, South Africa's leading marketing and social insights company, has developed a Market Sentiment Index (MSI) ideally suited to SA conditions (as a developing country) to provide decision-makers in all parts of the economy with some idea of people's sentiment towards the economy and, hence, their future wellbeing.
This index examines people's current and future perceptions of the economy in terms of job availability, business conditions, general economic conditions, prices and inflation, likely income, and the effects of AIDS and crime on the economy. These two constructs – “where are we now?” and “where are we going?” are then combined into an overall index. The future perceptions measure, in particular, can be a leading indicator of changes in people's spending patterns if it changes over time by any material amount. The index is calculated via a survey every two to three months of 2 000 metropolitan adults aged 18 years and over, sampled from the major metropolitan areas of South Africa. In the latest reading, 1 265 blacks, 385 whites, 235 coloureds and 115 Indians/Asians were questioned. The overall margin of error is less than 2.5%
The index was first measured in May/June 2002 and is tracked regularly. The study is conducted with a sample of 2 000 adults (male and female) in South Africa's main metropolitan areas, and is representative of all population groups in those areas.Technical note
The study was conducted amongst a sample of 2 000 adults (1260 blacks, 385 whites, 240 coloureds and 115 Indians/Asians) in the seven major metropolitan areas: the study has a margin of error of under 2.5% for the results found for the total sample. People were interviewed face-to-face in their homes. The study was conducted by TNS Research Surveys (Pty) Ltd as part of their ongoing research into current social and political issues and was funded by TNS Research Surveys (Pty) Ltd. For more details, please contact Neil Higgs, Director, on (011) 778-7500 or 082-376-6312.
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