Ina Opperman

By Ina Opperman

Business Journalist


SA inflation rate remains favourable despite fuel price hikes

Statistics SA announced on Tuesday morning that inflation increased from 2.9% in November to 3% in December.


Economists say South Africa’s inflation rate remains favourable despite fuel price increases over the past few months. However, they expect food prices to increase over the next few months and push inflation higher.

The country’s inflation rate averaged a lower-than-expected 4.4% in 2024.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the near-term inflation outlook is benign, with the headline rate likely to ratchet up gradually throughout the first half of the year before it breaches the midpoint of the target band in the fourth quarter.

“The inflation outcome for December was below our forecast and the consensus estimate of 3.2% and continues to surprise below expectations. Still, we anticipate a gradual acceleration in consumer prices, with the headline rate forecast to average closer to 4% in 2025 compared to our initial forecast of 4.4%.

“With headline inflation set to hover below the midpoint of the South African Reserve Bank’s (Sarb) target range of 3%-6% for most of this year, the debate on if and when to lower the inflation target is set to continue.”

Van der Linde says while Sarb Governor Lesetja Kganyago favours a lower target, Finance Minister Enoch Godongwana sounds less convinced, noting that inflation is benign. He says it seems unlikely that a change will come about soon.

ALSO READ: Inflation creeps up for the second month in December

Inflation outlook for 2025 remains favourable

“South Africa’s inflation outlook remains favourable despite successive monthly fuel price hikes since November 2024, with another fuel price increase likely in February. South Africa has not fallen into the cross hairs of President Donald Trump’s tariff threats so far, with the rand trading firmer against the US dollar.”

He says in addition, international oil prices have come down, which bodes well for South Africa’s fuel price outlook in 2025. “We forecast Brent crude oil prices will average $72.9pb in 2025, lower than the $80.5pb average in 2024, with weak oil demand from China being a key factor in this regard.

“However, we also anticipate heightened volatility across the spectrum that could change circumstances quickly, especially for the risk-sensitive rand. Although the rand is trading more fairly at the moment, we think that a stronger US dollar will continue to exert pressure on the local unit in 2025.”

Based on Oxford Economics’ updated forecast, the rand should average R18.8/$ in 2025 and end the year at just over R19/$. “South Africa’s economic momentum, although positive, remains fickle heading into the new year, fraught with heightened global geopolitical risks.”

ALSO READ: Inflation up marginally in November

Inflation lower than expected in December

Koketso Mano, senior economist at FNB, says the outcome was slightly below FNB’s expectations of 3.1% and the market expectation of 3.2%. “We see CPI remaining subdued in the first half of 2025 and rising steadily into the second half of the year.

“We anticipate that headline inflation will post 3.2% in January and settle above 5% by the end of the year. This will be dictated by fading positive base effects and improving demand. Nevertheless, average inflation should be softer than in 2024.”

Risks to the outlook include a more robust normalisation in services inflation as well as a faster acceleration in administered price inflation, Mano says. “Less cooperative trade policy and increased defence spending will drive reflationary pressure across various parts of the globe.

“However, global activity should remain weak and that could contain commodity price pressures. Should the net result be inflation that is higher than expected, this would keep monetary policy tighter.

“The ongoing implementation of structural reforms will remain key to the outlook on productivity and the cost of doing business. Over the medium term, an improvement in the supply side dynamics of the SA economy will support structurally lower inflation.”

ALSO READ: Inflation down sharply in October – lowest since June 2020

Uptick due to seasonal increases

Hannah de Nobrega, economist and quantitative analyst at Prescient Investment Management, says over the short term, this uptick can be attributed to seasonal increases in components such as food and non-alcoholic beverages.

“Over the medium term, food has been the main driver of headline inflation. The El Niño five to seven-year weather cycle typically brings increased rainfall, leading to mould and occasional crop flooding. This, in turn, causes higher fruit and vegetable prices.”

ALSO READ: SA inflation expectation lowest in three years

Inflation reached bottom line of Sarb’s target range

Dr Elna Moolman, head of South Africa macroeconomic research at the Standard Bank Group, points out that inflation just reached the bottom of the Sarb’s 3 to 6% target range in December after two consecutive months of inflation below the Sarb’s target range.

“A number of factors were at play. Fuel prices were still more than 10% below their levels of a year earlier, while food prices increased by only 1.7% compared to December 2023.

“Most importantly, rental inflation remains quite subdued. This is important because it is a large part of the basket with a weight of around 15%, and it is generally seen as one of the barometers of consumer-driven or demand-driven inflation pressure.”

Moolman says this is a clear indication that the Sarb’s general, underlying, or consumer-driven inflation pressure is still very subdued and this should go a long way in alleviating any concerns about the inflationary pressure that we could see down the line from the current currency weakness.

ALSO READ: Lowering the inflation target will cost us – expert

Inflation expected to remain below 4.5 in 2025

Johannes Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, say they expect inflation to drift higher in 2025 but remain below 4.5% for most of the year, with the upward pressure mainly from food and fuel prices.

“The next release, for January, will be based on a new inflation basket, but this is not likely to significantly change our forecasts. We forecast inflation to average around 4% in 2025. However, our forecast faces upside risks, including the threat of a renewed rand weakness, potentially higher global inflation, increased geopolitical uncertainties, steep domestic electricity tariff hikes and higher-than-expected wage settlements.”

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