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After inflation increased again at the beginning of 2024, it ended the year remarkably lower, although economists expect that inflation will increase again in 2025. Lower inflation did, however, bring consumers two repo rate cuts towards the end of the year.
Inflation increased again in January from 5.1% in December to 5.3%, mainly due to increases in the prices of food and non-alcoholic beverages, housing and utilities, miscellaneous goods and services, and transport.
February brought no better news, with inflation increasing to 5.6%, before decreasing to 5.3% in March, 5.2% in April and remaining the same in May.
Inflation eased to 5.1% in June, with almost all the major subcategories recording slower annual price increases, including food, transport, housing and utilities, and miscellaneous goods and services. Food inflation was the lowest in 45 months in June, the lowest since September 2020 at the peak of the Covid lockdown, when the rate was 3.8%.
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The inflation rate dipped below 5% in July, the lowest in three years, after holding steady for ten months in the 5% to 6% range, while annual consumer price inflation slowed to 4.6% in July.
Inflation slowed for a third consecutive month, cooling to 4.4% in August, the lowest inflation print since April 2021 when the rate was also 4.4%. Inflation cooled again for a fourth consecutive month, easing to 3.8% in September, the lowest inflation print since March 2021, when the rate was 3.2%.
Inflation declined sharply in October to 2.8% from 3.8% in September to reach the lowest point since June 2020 during the Covid-19 pandemic, when the inflation rate was 2.2%. But then inflation increased marginally in November to 2.9% from 2.8% in October, coming in lower than the 3.3% some economists expected.
Jee-A van der Linde, senior economist at Oxford Economics Africa, said the outcome was somewhat lower than their forecast of 3.2%. “Although headline inflation increased less than expected in November, South Africa’s inflation rate will quicken moderately over the coming months.
“Despite the latest uptick, headline inflation remains at pandemic-era lows, with food price inflation at its lowest level since December 2010. Given the benign inflation environment and favourable outlook, South Africa can afford to steadily forge ahead with its easing cycle, although the path of monetary policy, generally speaking, has become less certain in recent months.”
Oxford Economics forecast that inflation will average 4.4% in 2025 compared to the 4.5% anticipated for 2024.
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Reserve Bank Governor, Lesetja Kganyago, said earlier that he would like South Africa’s inflation target to be lower than the current target band of 3% to 6%, as the country was able to lower inflation to 4.5% without too much pain or cost.
However, Pieter Koekemoer, head of the personal investments at Coronation, says there will be pain and there will be cost. “Lowering the target comes with definite short-term and potential long-term costs.
“In the short term, some economic growth needs to be sacrificed, as interest rates will remain higher for longer. In the longer term, credibility will be sacrificed if the new target is not consistently met, reducing the attractiveness of South Africa as an investment destination.
“Elevated public debt levels and a track record of government inefficiency, expressed in consistent above-inflation increases in administered prices, such as water and electricity, increase the long-term risks.”
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The South African Reserve Bank (Sarb) only cut the repo rate after inflation began to decline in September by 25 basis points as economists expected, giving South African consumers some breathing room after the repo rate remained at 8.25% since May last year.
In November, the Sarb again cut the repo rate by only 25 basis points, despite economists calling for a cut of 50 basis points after the full 1% decline in inflation in October. Economists said there were no inflation expectations to justify not cutting the repo rate by 50 basis points.
However, Kganyago and the Monetary Policy Committee (MPC) did not seem to agree, with Kganyago saying the global macroeconomic context had become more challenging since the previous MPC meeting in September. The two 25 basis points cut brought the repo rate to 7.75%.
Van der Linde said Oxford Economics forecast cumulative rate cuts equal to 75 basis points in 2025 compared to their previous projection of 100 basis points.
“A stronger US dollar poses a risk to South Africa’s inflation outlook, and we expect the Rand to remain under pressure over the coming months, with the local unit forecast to reach R18/US$ by mid-2025.”
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