Slower South Africa Inflation Paves Way for Rate Cuts in January
TLDR
- South Africa’s inflation edged up slightly in November but remained below expectations, providing scope for the central bank to continue easing monetary policy
- Consumer prices rose 2.9% year-on-year, compared with October's 2.8%, Statistics South Africa reported on Wednesday
- Food and non-alcoholic beverage inflation slowed to 2.3% in November from 3.6% in October, its lowest level since 2010
South Africa’s inflation edged up slightly in November but remained below expectations, providing scope for the central bank to continue easing monetary policy. Consumer prices rose 2.9% year-on-year, compared with October's 2.8%, Statistics South Africa reported on Wednesday.
Food and non-alcoholic beverage inflation slowed to 2.3% in November from 3.6% in October, its lowest level since 2010, helping keep overall inflation in check. Despite the uptick in the headline rate, inflation remains below the South African Reserve Bank’s (SARB) target band of 3% to 6%.
The SARB has cut interest rates by 50 basis points to 7.75% since September and is expected to lower rates further at its January 30 meeting. Governor Lesetja Kganyago has signaled caution amid global economic uncertainty, including volatile fuel prices, a weaker rand, and potential shifts in US trade policies under President-elect Donald Trump.
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Key Takeaways
South Africa’s subdued inflation creates room for SARB to lower rates further, but global uncertainties present risks. Forward-rate agreements suggest another 75 basis points of cuts over the next year. Slowing inflation, particularly in food prices, has supported the SARB’s easing cycle. However, risks from a weaker rand, rising fuel prices, and global uncertainties—such as potential US trade shifts under Trump—complicate the outlook. Bloomberg Economics forecasts inflation will hover near 3% for six months before rising to the midpoint of the SARB’s target range by late 2025. This backdrop suggests scope for two more rate cuts in early 2025, though the SARB remains cautious about its next moves.
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