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Although inflation edged up to 3.2% in January, up slightly from 3% in December 2024, economists expect that it will remain subdued for now and only increase steadily into the second half of the year.
Statistics SA announced on Wednesday that inflation for food and non-alcoholic beverages increased by 2.3% in the 12 months to January, a lower increase than the 2.5% registered in December. Inflation slowed for meat, fruits and nuts, sugar, confectionery and desserts, fish and other seafood and milk, other dairy products and eggs.
Meat cost on average 0.5% less compared to January 2024, the third month that meat has been in deflation. This is mainly the result of a downward trend in the price index during 2024. However, in January prices increased by 0.8% compared to December, when met registered an increase of 0.5%.
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However, cereal products, hot and cold beverages, oils and fats and vegetables were more expensive. Prices for cereal products increased by an annual 3.8% from 3.7% in December. Maize meal prices increased by 4.8% between December and January, taking the annual rate to 10.1%.
The annual increase for samp was 15.4%, but prices decreased for white bread that cost 0.7% less and brown bread that cost 0.5% less. The annual increase for white bread was 1.9% and for brown bread 1.0%.
Statistics SA also noted that inflation for hot beverages remains sticky at high levels, with an annual increase of 13.7% in January, slightly up from 13.5% in December. Overall prices increased by 1.0% between December and January, with instant coffee and rooibos tea both increasing by 1.4% compared to December.
The annual inflation rate for instant coffee entered double-digit territory in March 2022, falling briefly below 10% in August 2023 before peaking at 22.3% in August 2024. In January, the rate was 17.2%, the highest of all food products.
Other food and non-alcoholic beverages that cost notably more compared to a year ago include samp, fresh cabbage, dried beans, black tea, fizzy drinks and chocolate.
The fuel index increased for the third consecutive month by 0.9% in January compared to December, taking the annual rate to -4.5% from -10.2%. The price for inland 95-octane petrol, for example, was R21.59 in January, up from a recent low of R21.05 in October and this contributed to the increase in overall transport inflation, which edged higher to -0.2% from -2.0% in December.
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Jee-A van der Linde, senior economist at Oxford Economics Africa, says the near-term inflation outlook is benign. “Our updated forecast for headline inflation is that it will average 4.0% in 2025 compared to last year’s lower-than-expected 4.4%.
“Aside from the updated CPI basket, the January print did not contain any additional out-of-the-ordinary details. The near-term inflation outlook is benign, with the headline rate likely to ratchet up gradually throughout the first half of 2025 before it breaches the midpoint of the target band in the fourth quarter.
“Although this year’s inflation rate is expected to be lower, our revised policy rate forecast assumes just one more 25 basis points repo rate cut for the remainder of 2025, but it is unclear when that might be.”
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Johannes (Matimba) Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, says the gradual upward drift in inflation from a low base will likely continue throughout 2025. “Goods inflation will start edging up, driven by food and fuel prices.
“The upside will be kept in check by subdued services inflation, which is expected to moderate further in the first half before reversing course towards year-end. Despite the anticipated upward trend, headline and core inflation remain well below the 4.5% target of the South African Reserve Bank (Sarb), with no evidence of significant upward momentum among the goods and services in the basket.”
They still expect headline inflation to average 4% in 2025, down from 4.4% in 2024. “Today’s inflation numbers are relatively benign, while the rand has stabilised despite the uncertain global landscape. Unless circumstances change dramatically, current fundamentals support a further 25 basis points reduction in the repo rate in March.”
However, Khosa and Weimar believe the Sarb’s Monetary Policy Committee (MPC) will likely pause, leaving the repo rate unchanged in March, focussing on the upside risks to the inflation outlook emanating from the threat posed to the rand and imported inflation from a global trade war, sticky global inflation and the increasing likelihood of a prolonged pause in US interest rates.
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Koketso Mano, senior economist at FNB, also expects that inflation will remain subdued in the first half of the year before increasing. “We see headline inflation posting 3.5% in February and settling above 5% by the end of the year.
“This will be mainly due to fading positive base effects and improving demand. Nevertheless, we currently anticipate that average inflation will be softer than in 2024.”
Mano says risks to the outlook include a more robust normalisation in services inflation as well as a faster acceleration in administered price inflation, especially water services. “In addition, any hike in the VAT rate would increase annual inflation. In addition, global policy uncertainty should weigh on emerging market currencies including the rand.”
Frank Blackmore, lead economist at KPMG South Africa, says core inflation remains well below the target level at 3.5%, which means there is probably still room to reduce interest rates further if the Sarb wants to do so at its March meeting.
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