Our weekly podcast by Kevin Lings:

US inflation stays low; SA’s mining, manufacturing output disappoints

In this podcast, STANLIB’s Chief Economist, Kevin Lings, looks at US headline consumer inflation, which was below market expectations, at 2.4% y/y in January, with little evidence of a build-up of pressure. At the same time, job creation was above expectations. This should help the US achieve 2% GDP growth this year. Latest South African mining and manufacturing output data was disappointing, due to lingering infrastructural and policy constraints.

The focus areas during the week included:

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• The S&P 500 declined by 1.4%, having fallen in four of the past six weeks. Year-to-date the S&P 500 is down 0.1%, after being up 1.9% on 28 January. Recently, the US equity market has been undermined by concerns about the disruptive potential of AI in a broad range of industries. This is partly reflected in the fact that the NASDAQ 100 declined by 1.4% in the past week and is down 2% year-to-date. In contrast, the Russell 1000 Value Index is up 6.4% year-to-date, helped by stock rotation. Despite modest employment growth, the US economy is currently being supported by several tail winds: solid consumer spending by higher‑income households (including a positive wealth effect); fiscal support from last year’s tax bill, which should lead to larger tax refunds; elevated AI‑related capital spending; and a reduction in interest rates. Taken together, these drivers suggest the US economy can achieve a relatively strong economic growth rate of around 2-2.5%. While the large tech stocks have recently lost some momentum, “old economy” areas such as chemicals, transportation, industrials, and other real‑asset businesses have started to out perform. The market’s rotational character should create diversification opportunities and help to ease valuation concerns.
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• The STOXX Europe 600 reached a new high but ended the week broadly unchanged, with a gain of only 0.1%, as concerns about the disruptive impact of AI washed into European markets. Japan’s stock markets rose sharply, with the Nikkei 225 Index gaining 5% and the broader TOPIX Index up 3.2%. The markets surged on the outcome of Japan’s 8 February Lower House election, where Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) secured a super majority, winning more than two-thirds of seats. The South African equity market ended the week up 0.4%, helped by a gain of 1.9% in the Resource 10 Index and a rise of 1.4% in the Financial 15 Index. Unfortunately, the Industrial 25 Index declined by 1.8%.
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• The US bond market generated positive returns, with yields across most maturities declining from where they ended the prior week. The market was partly supported by better-than-expected inflation data. After initially spiking on the resounding election victory of Japan’s LDP, the yield on the 10-year Japanese government bond (JGB) settled at around 1.23%, broadly unchanged from the prior week.
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• Stronger-than-expected US non-farm payrolls data last week dampened expectations about the pace of US interest rate cuts, providing some upside risk on the dollar, and downside risk to commodity prices. The rand and emerging markets held steady in the week. Year-to-date gains inthe rand can largely be attributed to January’s out performance and the surge in precious metals prices. Year-to-date the rand is up by 3.7% against the US dollar, while emerging market currencies in aggregate are up 1.7%. The volatility of gold and precious metals prices is a near-term risk for the rand.
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• In January 2026, the US unemployment rate declined to 4.3% from 4.4% in December and a recent high of 4.5% in November 2025. The consensus expectation was for the unemployment rate to remain unchanged at 4.4%. Overall, the unemployment rate has trended higher since January 2024, when it was recorded at 3.7%. However, an unemployment rate of 4.3% is still acceptable in the US economic context and signals that, while the US labour market has softened over the past year, it remains relatively strong.‍
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• US non-farm employment rose by a robust 130 000 jobs in January 2026, which was well above market expectations for an increase of only 65 000 (Bloomberg). Almost all the January job gains were concentrated in two sectors, namely healthcare and social assistance (+144 000 jobs), which reflects changes in US demographics rather than a surge in economic activity. The previous two months’ employment data was revised down by 17 000. Over the past six months the US has added an average of only 14 000 jobs a month (including the latest data for January 2026), while over the past 12 months the average monthly increase in employment was 30 000. It can be argued that the 12-month average increase in employment is acceptable in an environment of significantly less immigration. However, the average increase in the past six months is signalling a very noticeable softening of labour market conditions, which are being hurt by the negative impact of high import tariffs and the greater use of AI in the business sector.‍
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• The US labour market report for January 2026 contained sharp downward revisions to prior years, including a cut that brought 2025’s total job creation down to just 181 000 from apreviously reported 584 000. However, January’s upside surprise appeared to dampen investors’ expectations for an interest rate cut in the near term, as the probability of the Federal Reserve (Fed) keeping rates unchanged until June rose from around 25% on Tuesday to over 40% after the release, according to the FedWatch tool.
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• In January 2026 US consumer inflation rose by 0.2% m/m, which was below market expectations for an increase of 0.3% m/m. This pulled the annual rate of inflation down from 2.7% y/y to 2.4% y/y. A notable decline in energy prices helped to drive January’s deceleration. Core consumer inflation increased by 0.3% m/m in January, in line with expectations, resulting in the annual rate of core inflation easing from 2.6% y/y to 2.5% y/y – the lowest level since 2021. Core goods prices were flat for the month, driven by a 1.8% decline in used vehicle prices. On the services side, shelter prices rose by a modest 0.2% for the month. While core inflation has slowed from 3.3% at the start of 2025 it is, obviously, not yet in sight of the Fed’s inflation target. It is likely to remain elevated in the coming months - partly because of the additional fiscal stimulus at the household level. Importantly, however, US inflation is not expected to re-accelerate meaningfully, allowing the Fed to focus on possible rate cuts – especially in the second half of this year, if the labour market remains solid enough.
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• US retail sales were unchanged month-on-month in December 2025, which was well below market expectations for a monthly gain of 0.4%. In addition, the control group of retail activity (which excludes spending on vehicles, fuel stations, and building materials) fell by 0.1% m/m, compared with expectations for a gain of 0.4%. The slowdown in retail spending was broad-based, with weakness notable in furniture and home furnishings stores (-0.9%), miscellaneous store retailers (-0.9%), and clothing and accessories stores (-0.7%). In contrast, spending on building materials was much more robust (+1.2%). While the January retail spending data was disappointing, consumer spending should be supported in the next few months by larger-than-normal tax rebates, stemming from tax legislation passed in 2025.
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• US weekly jobless claims slowed to 227 000 last week from a revised 232 000 in the prior week. This was slightly higher than market expectations for the number of claims to fall to around 223 000. Over the past four weeks the number of claims has averaged 220000, which is a three-month high. This is not especially concerning, given that the number of claims remains low from a historic perspective. Overall, the US labour market remains resilient.
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• South African manufacturing production declined by a substantial 1.2% m/m in December2025, which caused manufacturing output to decline by a very disappointing 0.5% q/q in the final quarter of2025. A breakdown of production by industry reveals that eight of SA’s 10 major manufacturing sectors declined in the quarter, with chemical production and electrical machinery the only two positive contributors. In 2025 manufacturing contracted by 1.3% after declining by 0.4% in 2024. Overall, manufacturing output has fallen by 7.9% since 2019.
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• South African mining output fell by 1.2% m/m in December 2025, which pushed the Q4 2025 performance down by 0.5% q/q. The Q4 2025 performance was hurt by a decline in gold outputas well as that of PGMs and diamonds. In 2025, mining output rose by only 0.1%, although sales revenue grew by a very welcome 7.3%, boosted by a strong out performance in H2 2025.
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• ‍In January 2026, China’s CPI increased by a modest 0.2% y/y, which is down from 0.8% y/y in December and below market expectations for the annual rate of consumer inflation to moderate to 0.4% m/m. China’s headline inflation rate has been below the People’s Bank of China’s (PBoC) new implicit target of 2% for three years. The slow down in inflation in January 2026 was partially attributed to base effects, as the Lunar New Year shifted from January last year to February this year. In addition, producer prices remained in deflation for a 40th straight month at 1.4% y/y. Beyond base effects, there are no signs of definitive reflation in China yet as the economy continues to struggle with weak domestic demand conditions.‍
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• The PBoC reaffirmed that it will implement a “moderately loose” monetary policy in 2026. The central bank pledged to strengthen financial support for key areas to boost domestic demand, technological innovation, and small to medium-sized enterprises. PBoC Governor Pan Gongsheng indicated that there is room for further reserve requirement ratio and interest rate cuts. The central bank also injected liquidity to help lenders meet expected cash demand before Lunar New Year.‍
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• China’s house prices continued to decline in January 2026, although the rate of decline for existing homes slowed to 0.5% m/m, the smallest rate of contraction in eight months. China’s new home prices fell by 0.4% m/m in January, matching the decline recorded in December.‍
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• The number of employed people in the Euro zone rose by a larger-than-expected 0.2% q/q in the final quarter of 2025 and by 0.6% y/y. Job growth was particularly strong in Spain, where it was up 0.8% q/q, helped by the fact that the Spanish economy grew by 0.8% q/q in the final quarter of 2025, the strongest in the Eurozone. In contrast, German employment recorded a small contraction in Q4 2025, despite the large fiscal stimulus measures announced in early March 2025. Fiscal stimulus measures focused on increased infrastructure spend almost always tend to take much longer to implement than many people estimate. ‍
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• In Japan the LDP’s landslide victory reflected the public’s backing of Prime Minister Takaichi’s policy agenda, which is focused on aggressive fiscal spending, investment, and targeted tax cuts. It also opened the door to her government pursuing an amendment to Japan’s constitution, specifically the pacifism clause. This is likely to set the stage for a large increase in Japan’s defence spending in the next few years.
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