South Africa’s inflation in November 2024 increased slightly to 2.9% year-on-year (y/y), up from 2.8% in October, but still well below the Reserve Bank’s target range of 3.0%.
This outcome was better than FNB’s forecast of 3.2% and market expectations of 3.1%.
The marginal rise was driven by a small 0.9% month-on-month (m/m) increase in fuel prices, though food deflation helped mitigate this.
Food inflation dropped to 2.3%, from 3.6% in October, with prices for vegetables, cereals, dairy, and eggs all falling. Core inflation, which excludes food and fuel, also softened to 3.7% y/y, down from 3.9% in the previous month.
Despite the small increase in headline inflation, domestic price pressures remain relatively contained.
“We’re seeing a very stable inflation environment for now, which is a positive sign,” said Koketso Mano, Senior Economist at FNB. “However, as we look ahead, there are increasing global risks that could affect South Africa’s inflation trajectory in 2025.”
Deflationary Trends in Food Prices Provide Temporary Relief
Despite the slight rise in overall inflation, deflation in key food categories has provided substantial relief for South African consumers.
Food and non-alcoholic beverages (NAB) inflation fell to 2.3% y/y, down from 3.6% in October. The monthly deflation of 0.4% in food prices was driven by lower costs for vegetables, cereals, and dairy products.
Fuel prices, though rising by 0.9% m/m, were still 13.6% lower compared to November 2023, offering consumers some reprieve at the petrol pump.
“We expect food inflation to remain subdued through the end of the year, largely driven by these deflationary trends,” Mano explained.
“However, the longer-term outlook is more uncertain, and we could see inflationary pressures building next year.”
While food prices are expected to stay relatively stable, core inflation could start rising due to higher housing costs, as well as potential increases in medical insurance and other services costs.
FNB’s forecast suggests that inflation will rise slowly in 2025 but will likely remain below 4.0% for the first half of the year.
Global Risks Could Derail South Africa’s Stability
Despite favorable domestic trends, global risks loom large for South Africa’s economy.
Geopolitical tensions, rising global inflation, and tightening monetary policies in major economies, such as the U.S., could lead to higher costs for commodities, fuel, and imports.
This would likely weigh on South Africa’s inflation, especially if the rand weakens further.
“South Africa remains vulnerable to global inflationary pressures,” said Mano. “If the rand weakens, it will drive up the cost of imports and could lead to higher domestic inflation, which would complicate the Reserve Bank’s policy decisions.”
The South African Reserve Bank (SARB) is currently expected to cut interest rates by 25 basis points at each meeting through May 2025, but this strategy could be tested by rising global inflation and tighter financial conditions.
A weaker rand and higher global inflation could put pressure on the SARB to reconsider its monetary policy stance, potentially halting or reversing interest rate cuts.
What’s Ahead for South Africa and the Global Market?
For South Africa, the short-term inflation outlook remains relatively stable, but global risks are increasing.
Geopolitical uncertainties, tighter global monetary policies, and potential supply chain disruptions are likely to affect inflation and exchange rates.
The continued rise in fuel prices, combined with possible upward pressure on services costs, will keep inflationary pressures alive as we move into 2025.
“As global inflationary pressures build, South Africa may find itself at the mercy of external factors that could trigger higher inflation,” Mano explained.
“The key question will be whether these global pressures result in a sharper rise in inflation than expected.”
In the coming year, the SARB’s cautious approach to interest rates will be key to managing inflationary pressures while keeping the economy on track.
However, South Africa’s economy will have to contend with both domestic challenges such as rising housing and services inflation and global disruptions, including higher commodity prices and a potentially weaker rand.
South Africa’s ability to manage inflation effectively will depend on how well it navigates both internal economic dynamics and the evolving global landscape.
The country’s inflation outlook is still largely positive for now, but the external risks ahead will require careful attention.
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