South Africa's Inflation Slightly Rose to 3.2% in January
Bottom Line: StatsSA announced on February 26 annual South Africa’s inflation slightly accelerated to 3.2% YoY in January from 3.0% YoY in December and the main contributors were housing and utilities, food and non-alcoholic drinks, fuel and restaurant. We feel unpredictable outlook of the global economy, rising tariffs and volatility of ZAR in January contributed to the moderate surge in prices in January. Taking into account that the inflation rate is still within the South African Reserve Bank's (SARB) target range of 3% to 6%, power cuts are suspended, and inflation expectations are well anchored, we feel SARB will likely continue its cutting cycle and reduce the key rate by 25 bps to 7.25% during the next MPC meeting scheduled for March 20 while February inflation print which will be announced on March 19 will be key.
Figure 1: Policy Rate (%), CPI and Core Inflation (YoY, % Change), January 2023 – February 2025
Source: Continuum Economics
South Africa’s inflation slightly increased for third straight month to 3.2% YoY in January, despite it is still well within the SARB’s target range of 3% to 6%. The primary drivers of the increase were food and non-alcoholic beverages (+2.3%), housing and utilities (+4.5%), and restaurants and hotels (+4.9%). According to StatsSA, the fuel index witnessed its third consecutive monthly rise, increasing by 0.9% in January compared with December, which took the annual rate to -4.5% from -10.2%, as the price for inland 95-octane petrol ticked up to R21,59 in January, up from a recent low of R21,05 in October 2024. We feel unpredictable global outlook, Trump tariffs, and volatile ZAR supported the moderate hike in inflation in January. (Note: January inflation print is the first one after StatsSA has recently made changes to goods and services in its CPI basket. New products added to the basket were basmati rice, meat bones, ready-made meals while items removed included ready-mix flour, flavoured milk, frozen and coffee beans.)
According to the announcement on February 26, core inflation eased to 3.5% YoY in January to the lowest level since February 2022, compared to 3.6% YoY in December. MoM CPI edged up by 0.3% after a 0.1% rise in December.
The inflation reading continued to be supported positively by the suspended power cuts (loadshedding). South Africa’s national electricity utility company, Eskom announced on February 21 that load shedding remained suspended for 323 consecutive days since March 26, 2024 reflecting an improvement in the reliability and stability of the power generations coupled with new investments.
Speaking on inflation trajectory, SARB governor Kganyago cautioned this week that rising tariffs are a risk to the global economy and may disrupt the disinflation process, reversing central banks’ interest rate-cutting cycles.
We think moderate January print backs rate cut bets during the next MPC meeting scheduled for March 20 as the inflation remains well below the central bank's current 4.5% target, despite unpredictable global outlook continues to cause concerns. Given power cuts are still suspended, inflation expectations are well anchored and core inflation is at its the lowest level since February 2022, we feel SARB will likely continue its cutting cycle, and reduce the key rate by 25 bps to 7.25% on March 20 while February inflation print which will be announced on March 19 will be key.
Of course, cautious SARB could also act carefully on interest-rate adjustments playing it safe this time due the global risks, and halt the cutting cycle after three straight cuts, despite we feel there is room for the cut to take place in March. No matter what the SARB’s decision will be, it will be a close-call.