Consumer inflation accelerated slightly to an annual rate of 3% in December from 2.9% a month earlier, reinforcing expectations of a 25 basis point interest rate cut at the Reserve Bank’s monetary policy committee (MPC) meeting next week.
Month-on-month inflation as measured by the consumer price index (CPI) accelerated by 0.1%, reflecting mild upward pressure in the final month of the year.
The numbers were better than expected — economists had forecast an increase of between 3.1% and 3.2% year on year and a monthly rise of 0.2% to 0.3%.
Still, Wednesday’s data from Stats SA highlights persistent pressures from housing and food costs, though the overall rate is at the bottom of the Bank’s 3%-6% target range.
Moreover, average inflation for 2024 signals the Bank is making significant progress in reducing price pressures.
“The smaller-than-expected rise in SA’s headline inflation rate, to 3% year on year in December, combined with the recent recovery in the rand, supports our view that the [Reserve Bank] can continue with its easing cycle,” said David Omojomolo, Africa economist at Capital Economics.
While goods inflation edged up from 1.6% year on year to 1.9% last month, services inflation moderated from 4.3% to 4.2%, year on year, he said.
“Crucially, core inflation fell further, from 3.7% year on year to 3.6% in December. That gives us further reason to believe the [Reserve Bank] will feel confident in continuing its monetary easing cycle this month,” Omojomolo said, adding that Capital Economics is of the view that inflation will remain subdued as a result of lower crude oil prices and a large degree of spare capacity in the economy.
“The [Bank] will also be encouraged by the rand’s recent recovery,” Omojomolo said.
Investec chief economist Annabel Bishop agreed. “With CPI well below the midpoint of the inflation target of 4.5% year on year, and likely to remain so for the rest of this year and most of the first half of next year, the MPC is still expected to trim interest rates this month, by 25 basis points,” she said.
The [Bank] will also be encouraged by the rand’s recent recovery.
— David Omojomolo, Africa economist at Capital Economics.
The annual inflation rate for housing and utilities was 4.4%, contributing one percentage point to the overall CPI. This reflects the upward trend in rentals and utility services, which remain key drivers of inflation in this category.
Prices for miscellaneous goods and services, such as personal care items, rose by 6.6% year on year, contributing one percentage point to the overall inflation rate.
Annual inflation for food and nonalcoholic beverages stood at 2.5%, contributing 0.5 of a percentage point to the headline rate.
Modest increases in food prices were in line with global trends, as international food prices rose by more than 6% month on month in December.
Standard Bank economist Elna Moolman said food prices increased by just 1.7% when compared with December 2023.
“Most importantly, rental inflation remains quite subdued,” she said. “This is important because it is a large part of the basket, with a weighting of around 15%, and it is generally seen as one of the barometers of consumer-driven or demand-driven inflation pressure.”
She said with this still below 3%, it was a clear indication for the Reserve Bank “that general or 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”.
Prices for alcohol and tobacco products increased by 4.3% year on year, contributing 0.3 of a percentage point to overall inflation.
Despite this, average inflation for 2024 recorded a substantial decline, falling to 4.4%, compared with 6% in 2023, demonstrating easing price pressures throughout the year.
Old Mutual chief economist Johann Els said: “While headline inflation will drift up towards year-end, this is not necessarily due to price pressures, but rather to unfavourable base effects. I expect headline inflation to remain below 4% until around midyear, and around the 4% to 4.5% range towards year-end. My annual average inflation forecast for 2025 is 4%.”
Independent economist Elize Kruger. said: “The uncertainties about the impact of US president Trump’s policies on the global economy could also be seen as an upside risk to the inflation outlook in 2025.
“My average CPI forecast for 2025 has crept up to 4.2%, still below the midpoint of SA’s inflation target band, but a bit higher than the [Bank’s] most recent forecast of 4% at the time of the November MPC meeting.”
Update: January 22 2025
This story has further economists’ comment.
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