While the first inflation readings of 2025 hovered at — or just below — the lower bound of the Reserve Bank’s target band, economists now warn that inflation may edge higher in the second half.
“Headline CPI inflation has surprised to the downside over the past few quarters, but there are a few factors that seem likely to push it gradually higher in the second half of the year,” said Miyelani Maluleke, head of SA macroeconomics research at Absa Corporate and Investment Banking.
He said upside pressures from food and Eskom’s looming double-digit tariff hike, with higher fuel prices amid Middle-East tensions, could lift headline inflation.
“Our baseline is for headline CPI to rise slightly above 4% by the end of the year,” he said.
Headline inflation ticked up to 2.8% in April — largely due to an acceleration in food prices. Meat is doing most of the running in the 18%-weighted food basket.
FNB agricultural economist Paul Makube noted that the rise followed “a sharp uptake in meat prices since February”, triggered in part by a domestic foot-and-mouth-disease outbreak that led key export markets to ban SA beef.
Since then, SA has also suspended chicken meat imports from Brazil — its main external source — after a bird flu outbreak there.
“While indications are that domestic suppliers are geared to raise output, SA is a net importer of mechanically deboned meat (MDM), which is used in the manufacturing of various meat products,” Makube said about the Brazil-chicken issue.
As for a foot-and-mouth disease-related ban on SA’s red meat by markets, Makube added that this “may cause short-term pressure in the domestic market as the premium cuts destined for the international market are redirected to the local market”.
However, he noted that a seasonal downturn in demand during winter might help curb a further upswing in meat prices.
Wandile Sihlobo, chief economist at Agbiz, also noted that talk of runaway red-meat prices might be overdone. Foot-and-mouth outbreaks typically trigger export bans, “and that increases local supplies”.
“In the past, such led to a mild decline in red meat prices. This is why I have doubts about the talk of potential sharp increases,” said Sihlobo.
Beyond proteins, grains also offer relief. Makube highlighted a “bullish supply outlook” that bodes well for inflation — domestic futures for maize and wheat have fallen from last year’s highs, while a firmer rand is trimming import costs.
He also saw a further downside risk for fruits and vegetables due to the improved supply outlook.
“The combination of the improved domestic and global harvest outlook and a renewed rand exchange rate appreciation poses downside risk to most agriculture commodities for the year ahead,” Makube said.
“This, with a pedestrian economic growth and consequently timid consumer buying power, will limit upside pricing, which will help contain inflation in the second half of 2025.”
As for the other inflation drivers, Maluleke noted that Eskom’s tariff adjustment (about 12%) will be reflected in July’s CPI.
Fuel is, however, the wild card and “another important risk to monitor going forward”, Maluleke said.
Brent’s spike above $78 a barrel on Middle-East tension could lift pump prices by 30c-50c a litre in early July, independent economist Elize Kruger told Business Day.
But Old Mutual’s Johann Els noted that much depended on how long the conflict lasted and whether there was any escalation. A swift de-escalation could see oil prices settle below $70 again, limiting the economic fallout, he said.
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