The annual consumer price inflation (CPI) in South Africa held firm at 3.2% for February 2025, mirroring January’s figure and sparking speculation surrounding potential interest rate adjustments by the South African Reserve Bank (SARB) later this week. Economic experts are analysing the implications of these figures, particularly as core inflation receded slightly to 3.4%, providing a supportive context for potential rate cuts.
Frank Blackmore, Lead Economist at KPMG South Africa, discussed the notable contributors to the CPI figures, highlighting that housing and utilities remained the largest single contributor at 1 percentage point to the CPI figure, albeit down from 1.1 points in January. The primary driver within this category continues to be electricity prices, which surged by a striking 11.9% year-on-year.
The impact of food and non-alcoholic beverages also played a crucial role in shaping February's CPI, with notable inflation in fruit and nuts reaching 6.8%, alongside hot beverages like coffee, which saw inflation spike to 14.6%. In contrast, transport costs exhibited a deflationary trend, contributing a negative -0.1% to the overall CPI as transport inflation reported a decline of -0.5%.
Further dissecting the inflation landscape, Annabel Bishop, an economist at Investec, pointed out that surveyed costs related to health insurance and medical services nudged inflation upwards, which was compounded by an 82c increase per litre in fuel prices driving a contribution of 0.2% month-on-month. Nonetheless, the alleviation in international food prices—falling by 4.6% month-on-month—and a slight strengthening of the rand have provided some relief, counterbalancing the inflationary pressures domestically.
February was not without its challenges; vital staples such as maize meal witnessed price hikes against the backdrop of adverse weather affecting harvests.
Abigail Moyo, spokesperson for the trade union UASA, voiced concerns that while the CPI’s stability is a positive indication, any upcoming VAT hike could jeopardise consumer confidence and further strain the finances of low-income households.
"A contained inflation rate is essential for maintaining stability in interest rates for the foreseeable future," she stated.
As the SARB’s monetary policy committee convenes imminently, market analysts are keenly observing these developments. The prevailing sentiment appears cautious, with many economists, including Bishop, articulated expectations that interest rates may remain unchanged, given the notable uncertainty in global economic conditions and potential domestic inflationary pressures.
With core inflation declining and headline inflation steady, the door remains ajar for a potential 25 basis point rate cut as the economy grapples with its intricate challenges. Amidst this deliberation, stakeholders and businesses have been urged to remain mindful of labour forces' financial realities, as Moyo emphasised that consumer needs must take precedence in pricing strategies.
BUSINESS REPORT