As Predicted, South Africa Inflation Slightly Increased in April

Figure 1: Policy Rate (%), CPI and Core Inflation (YoY, % Change), January 2023 – April 2025

Source: Continuum Economics

Despite inflation stood at 2.7% YoY in March, the lowest reading since June 2020, as we predicted annual inflation slightly accelerated to 2.8% in April due to higher food prices. Annual inflation for food and non-alcoholic beverages (NAB) surged to 4.0% in April, the highest annual rate since September 2024. According to Stats SA, the rise in food and NAB came due to higher meat prices, particularly beef productions like stewing beef, mince and steak. While food prices showed an uptick, this was partly countered by lower fuel prices. The main downward pressure came from transport prices, which fell 3.9% YoY in April, a sharper drop than 2.4% YoY in March, mainly due to a 13.4% decline in fuel cost. 

We think unpredictable outlook for the global economy, return of loadshedding, and volatility of ZAR in April also contributed to the higher domestic prices in April. In MoM terms, inflation was at 0.3% in April from 0.4% in March. Annual core inflation rate slowed to 3% in April, the lowest since July 2021, from 3.1% in March.

We feel the inflation print stayed under pressure by the return of power cuts. South Africa’s national electricity utility company, Eskom announced on April 24 with little notice that Stage 2 loadshedding would be implemented, which suggested serious issues. (Note: May 13 also saw a Stage 2 loadshedding). Despite the Energy Availability Factor (EAF) was just below 57% for the year to date late April, the return of loadshedding remained worrisome since it continues to contribute to the inflation readings.

We think April inflation outlook was also negatively impacted by the volatility of ZAR in April, which hovered around 18.5-19.5 against the USD. (Note: The peak was on April 7 when ZAR hit 19.56 against the USD due to concerns related to Trump’s additional tariffs). 

On the downside, National Treasury issued a press statement on April 24 indicating that the proposed 1%pts increase in VAT over the next two years will not be implemented while the Minister of Finance also withdrew Budget 2.0. 

Despite March inflation print backed rate cut bets during the next MPC meeting scheduled for May 29 as the inflation remained below the central bank's midpoint target of 4.5%, we feel slight CPI hike in April, unpredictable global outlook and rising concerns about local political instability following disagreement on budget could cause SARB to put a hold on the easing cycle. Another determinant for prospective rate cuts will be the possible announcement on May 21 lowering the SARB’s inflation target. National Treasury is reportedly considering moving the target to between 3% and 5%, while the SARB had previously called for a lower single target at 3%.

In this respect, we consider SARB will closely monitor recent economic developments as they could significantly impact inflation forecasts. Under current circumstances, we envisage cautious SARB proceeds carefully on interest-rate adjustments, and likely hold the key rate constant on May 29 given plenty of upside risks to inflation. We think the decision will still be a close call taking into account the withdrawal of the (inflationary) VAT increase and recent fall in global oil prices.