Inflationary risks such as rising geopolitical tensions and underwhelming economic data from the world’s largest economy are unlikely to unravel South Africa’s improvement in economic indicators and living costs.
This is according to an independent economist and associate analyst at BankServAfrica, Elize Kruger. She spoke to Business Times this week after consumer inflation dropped below 4% for the first time since 2021.
In the same week, BankServ Africa’s take-home pay index recorded that average monthly salaries in South Africa rose above the R17,000 mark for the first time since the index’s inception, rising from R16,615 per month in August to R17,717 per month in September.
She said the rise in nominal take-home pay stemmed from positive developments including an improvement in load-shedding, a strengthening rand, settling fuel prices, inflation receding and a repo rate cutting cycle that started in September.
“What we are seeing in the data is a continuation of improvement in nominal salaries. I think this has got a lot to do with the fact that we’ve got an improved business environment in 2024 compared to the previous two years.
“We are starting to see companies’ ability to provide better salary increases has improved. It’s got a lot to do with factors such as the alleviation of load-shedding, inflation moderating, interest rates being cut, an improvement in confidence.”
She said over the years nominal salaries did not keep up with inflation, meaning companies could not keep up with rising costs. That is starting to change, which will have a positive effect on the ability of companies to afford to pay better salaries.
Asked about the external pressures that could weigh down on South Africa’s outlook, she said interest rates that are moderating globally should result in a weaker US dollar over time, where the US Fed will have to cut rates to address that economy's slowdown.
Progress will not easily be derailed overnight by temporary blips of disruption
— Elize Kruger, associate analyst at BankServAfrica
While a stronger dollar and spikes in the oil price could derail this progress, local progress would not easily be derailed overnight by “temporary blips of disruption”.
“There would always be risks. I think we have seen the Middle East conflict in the month of October which had a bit of a spike in the international oil price as a result of an escalation in that conflict.
“If you look at the graph on the rand price of oil, it’s a blip upwards, but then it also subsided again. So, we will have bouts of uncertainty and an escalation in tensions that will result in a reversal of the downward trend. It’s not necessarily going to be in a straight line,” she said.
The head of research at Pepperstone, Chris Weston, said South Africa's September CPI came in perfectly in line with market expectations, with core CPI at 4.1% year-on-year and headline inflation at 3.8%.
“Headline CPI has moderated from the August print, but the core remains sticky, although the moderation in headline inflation should see expectations for easing at the Sarb's [Reserve Bank's] next meeting on November 21 remain firmly in place.
“With South African interest rates futures already well priced for a further 25 basis points cut in November, today's inflation data won’t do too much damage to the rand over the medium-term.”
Cosatu’s parliamentary liaison officer Matthew Parks said the central bank needed to be swift in reducing the repo rate further.
“We trust that the Sarb will provide at least a 50-basis point cut in its next MPC meeting due in a few weeks. It is equally important that the government led by the ANC expedite interventions providing further support to Eskom to end its dependency on double-digit tariff hikes and ensure Transnet and Prasa are returned to full capacity to shield food and commuters from inflation.”
Addressing a lecture at the University of Stellenbosch last week, Sarb governor Lesetja Kganyago said high administered price inflation negatively impacts all South Africans, regardless of the central bank’s inflation target.
“What we are seeing with administered prices is known as a ‘relative price adjustment’. Essentially, these goods and services are becoming more expensive relative to others. When this increase stems from inefficiencies and the pricing power of monopolies, it is detrimental both to the economy and to consumers.”
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