SA’s annual consumer price index (CPI) rose to 3.2% in January, slightly up from 3.0% in December, with food and fuel “well-behaved”.
Month on month, consumer inflation accelerated 0.3%.
Standard Bank group head of SA macroeconomic research, Elna Moolman, noted that inflation “is lower than most people’s wage growth or total income growth and so after accounting for inflation, there is now more real support for consumers.”
The January figure released by Stats SA on Wednesday was broadly in line with expectations. Both Investec’s Lara Hodes and Absa economists predicted a 3.3% year on year increase while TreasuryOne forecast 3.2%, noting fuel price concerns. On a monthly basis, the 0.3% rise aligned with market expectations.
“The inflation pressures remain low; very low, indeed,” said Johann Els, chief economist at Old Mutual.
“Despite the fact that inflation has drifted up from the lows that we had in October last year (2.8%), the bulk of the updrift is due to base effects. Headline inflation at 3.2% in January [this year] compares to the 5.6% we had in February 2024, so it’s been quite a sharp decline since the highs of last year,” Els said.
He noted that core inflation was down from 5% in February last year to 3.5%.
Despite inflation remaining comfortably within the Reserve Bank’s 3%-6% target range, Investec chief economist Annabel Bishop said a pause in interest rates cuts was now expected.
But Els did not agree, saying he expected one more rate cut of 25 basis points in March. While he acknowledged the Reserve Bank’s forecasts would have to be adjusted by the next MPC meeting, he said: “The very low current inflation environment in SA, combined with the fact that we will see downward adjustments to the short-term forecasts from the Reserve Bank (given the changed basket weights and the lower-than-anticipated electricity price increases) suggests to me that that outweighs the risks that the Reserve Bank sees from the global side.”
He referenced Reserve Bank governor Lesetja Kganyago’s remarks this week about the risks from trade wars — upside risks in terms of inflation — but said: “There’s a counterargument that there are potential downside risks for the US economy, given the uncertainty around policy changes.”
Capital Economics economist Jason Tuvey concurred with Els, saying: “The smaller-than-expected increase in SA’s headline inflation rate to 3.2% year on year supports our view that the Reserve Bank can press ahead with its easing cycle over the coming months.”
According to Tuvey, January’s CPI data will lend support to the idea that price pressures “have been brought back under control — a message delivered by governor Kganyago at the recent G20 meeting”.
“That should pave the way for further interest rate cuts. We expect another 25 bps reduction at the Reserve Bank’s next meeting in March, to 7.25%, followed by further reductions to 6.75% by year-end.”
According to Stats SA, the main contributors to annual inflation were housing and utilities (4.5%, and contributing 1.1 percentage points), food and nonalcoholic beverages (2.3%, adding 0.4 percentage points), and restaurants and accommodation services (4.9%, contributing 0.3 percentage points).
“January surveys building and household content insurance costs, trade union fees, clinic and burial expenses and professional associations membership, but these are quarterly surveys and did not see notable changes,” Bishop said.
Fuel prices, while down 4.5% year on year, rose 0.9% month on month, reflecting higher global oil prices and a weaker rand in early January.
“There was little change in the petrol price at the start of this year, with only a 12c/l increase, but February saw an 82c/l rise, which will add some upwards pressure to inflation in that month,” Bishop said.
This CPI release is the first to include Stats SA’s updated basket and weights rebased to December 2024, with changes aimed at better reflecting modern spending habits.
A product’s weight represents its contribution to total household expenditure. A larger weight has a greater effect on the determination of the headline rate.
Stats SA now tracks 391 products, down from 396. The agency has added 71 new items and removed 53.
But the reweighting and updating of the CPI basket and a number of other normal updates has not caused the headline outcome to deviate from expectations, Bishop said.
While January saw a moderate rise in inflation, Bishop expected it to drop next month.
Els forecasts that inflation will continue to drift up but remain below 4% in the first half of this year, before edging closer to 4.5% by year-end.
Update: February 26 2025
The article has been updated throughout with commentary.
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