Consumer inflation eased to 2.7% in March, from 3.2% a month earlier, but despite the more favourable conditions economists remain unconvinced the central bank will cut rates soon.
Lower fuel prices, subdued domestic demand, easing infrastructure constraints and softer global oil prices are all contributing to a favourable inflation environment.
“This [reading] was partly owing to a slight downside surprise in food inflation, but mainly owing to much lower-than-expected rental inflation,” said Dr Elna Moolman, Standard Bank group head of SA macroeconomic research.
Wednesday’s reading released by Stats SA mark the lowest year-on-year reading since the early months of the Covid-19 pandemic in 2020.
The outcome came in well below forecasts from Nedbank (3.1%), Absa (2.9%) and Investec (2.8%), and also under the Reuters consensus of 3.0%.
It is also below the Reserve Bank’s 3%-6% target range, with the Bank preferring inflation to be as close to the 4.5% midpoint as possible.
In March, the Reserve Bank kept the repo rate steady at 7.50%, citing rising inflation risks, global economic uncertainty and the potential impact of fiscal policy changes.
Before March, the Bank had enacted three rate cuts since September 2024.
“I don’t think the Reserve Bank will cut rates in May at the next MPC [monetary policy committee] meeting, despite conditions dictating that they should,” Old Mutual chief economist Johann Els said. “I think the Reserve Bank will remain wary of global risks.”
He did, however, expect the Bank to begin cutting rates from July onwards.
“As price and wage setter expectations fall in line with the Reserve Bank’s longer-term objective, there is less need for restrictive monetary policy, providing space for additional interest rate cuts in the near term,” said senior FNB economist Koketso Mano.
Regarding the March number, Moolman said: “Rental inflation is a big part of the consumer inflation basket ... this is the second consecutive quarter in which rental inflation surprised to the downside. This is clearly reflective of weakness in the residential rental market.”
March core inflation was 0.5% month on month, and 3.1% year on year — down from 3.4% previously, Mano noted.
Month on month, the CPI rose by 0.4%, down from 0.9% in February, “driven by housing, education, as well as alcoholic beverages and tobacco”.
“A downside surprise came in terms of education costs, down from 6.4% to 4.5%,” Els said. “Education is measured annually in March, and the latest measurement was lower than expected.”
Mano forecast inflation to remain steady in April before resuming a rising trend in May.
“Some monthly pressure could show up in food inflation, while fuel price declines continue to contain overall inflationary pressure,” she said.
“Insofar as this is yet another indication of a weak domestic economy, it should underscore our concern in this regard,” Moolman told Business Day, adding that while they expect a gradual improvement in the growth trend, “several headwinds have already impelled a downward revision of our near-term growth forecasts”.
“There is still considerable uncertainty about how the geopolitical backdrop will unfold and, in turn, affect inflation (both domestically and globally),” she said.
“It will undoubtedly be negative for growth, and this will, to some extent, suppress inflation. There may be some inflationary impact in the US, at least initially. For SA, the ultimate impact on inflation will depend on several factors, including the impact on global inflation and the impact on the currency.”
Update: April 23 2025
This story has been updated with new information.
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