Consumer prices in South Africa are expected to remain subdued in the first half of 2025 in spite of headline inflation starting the year on the upswing.
Data from Statistics South Africa (Stats SA) showed that the rate of headline consumer price inflation (CPI) rose for the third month from 3% in December 2024 to 3.2% in January 2025, the highest in four months, compared with market forecasts of 3.3%.
Still, it remains well below the South African Reserve Bank's preferred midpoint target of 4.5%.
The January CPI is the first to incorporate the changes to the CPI bar scale and weights that Stats SA announced last month.
The data was released using the new base year 2024, replacing the previous base year 2021.
Stats SA said the primary drivers of the increase were food and non-alcoholic beverages, housing and utilities, and restaurants and hotels.
Patrick Kelly, chief director for price statistics at Stats SA, said the CPI for food and non-alcoholic beverages increased by 2.3% in the 12 months to January, but this is a lower increase than the 2.5% registered in December 2024.
“Meat prices were on average 0.5% lower in January 2025 compared with a year ago. This is the third month that the CPI for meat has been in deflation, mainly the result of a downward trend in the price index during 2024. However, in January, prices increased by 0.8% month-on-month, following a 0.5% month-on-month rise in December,” Kelly said.
“The fuel index witnessed its third consecutive monthly rise, increasing by 0.9% in January compared to December. This took the annual rate to -4.5% from -10.2% in December. The price for inland 95-octane petrol, for example, was R21.59 in January, up from the recent low of R21.05 in October 2024.”
Economists believe that headline inflation remains well-contained despite a slight acceleration.
They believe that the new CPI weights could lead to softer inflation outcomes, though the proposed Value Added Tax (VAT) hike from 15% to 17%—which delayed the 2025 Budget Review—would have likely offset this effect.
Old Mutual Group chief economist, Johann Els, said the inflation pressures remained very low indeed, adding that consumer prices have seen quite a sharp decline since the highs of last year.
“As I said, very little inflationary pressures at all, and some downside risk in terms of the forecast for the next year or two because of the change in the basket weights, but also because of the lower than anticipated electricity price increases that will impact the inflation index in July this year,” Els said.
“For the moment, I expect another rate cut at the March MPC meeting of 25 basis points. It will likely again be a risk-averse statement and press conference, but I see room for another rate cut, and thereafter it will be data dependent and news flow dependent.
“Inflation will continue to drift up, but remain below 4% in the first half of this year, and then drift closer to 4.5% by the end of the year. My annual average inflation forecast for 2025 is 3.8%. That suggests a very low inflation environment, an environment where the Reserve Bank can cut at least once more in March this year.”
According to Stats SA, the core inflation rate, which excludes volatile items such as food, non-alcoholic beverages, fuel, and energy, eased to 3.5% in January 2025, the lowest since February 2022, from 3.6% in December 2024.
On a monthly basis, consumer prices increased by 0.3%, after a 0.1% rise in the prior month.
FNB senior economist, Koketso Mano, concurred that inflation should remain subdued in the first half of 2025 before rising steadily into the second half of the year.
“We see headline inflation posting 3.5% in February and settling above 5% by the end of the year. This will be mainly on account of fading positive base effects and improving demand. Nevertheless, we currently anticipate that average inflation will be softer than in 2024,” Mano said.
“Risks to the outlook include a more robust normalisation in services inflation as well as a faster acceleration in administered price inflation, especially water services. In addition, any hike in the VAT rate would raise annual inflation. Furthermore, global policy uncertainty should weigh on emerging market currencies including the rand.”
BUSINESS REPORT