Inflation in South Africa has been at an all-time high, thanks to a jump in medical aid rates, according to the latest data from Nedbank.
The bank said this week that inflation is the highest it's been in four months.
“Higher services inflation was the main driver of higher consumer inflation, which rose to 5.6% year-on-year (YoY) in February, its highest level since October 2023 and above our forecast and the market consensus of 5.3% and 5.4%, respectively,” it noted.
Nedbank said that “miscellaneous goods and services” was also a key contributor for the month, adding 0.7 percentage points (pp) and 1.2 pp to the month-on-month (MoM) and YoY headline figures, respectively.
Medical aid rates surveyed in February, rose by 9.5% compared with a 6.4% increase in February 2023.
Food prices
Nedbank said that the prices of food and non-alcoholic beverages were not changed for the month, helping to moderate food inflation to 6.1%. This was its lowest level since April 2022.
“The food subcategories showed a broad-based easing in price pressures, except for ‘sugar, sweets, etc’, which still rose by 18.5%,” the bank noted.
Processed food inflation eased somewhat to 5.5% from 6.2%, and this was the main contributor to the lower food Consumer Price Index (CPI), while that of ‘unprocessed foods’ also contributed to the downside, declining to 6.4% from 7.9%.
With the effects of the avian flu dissipating, meat inflation fell further to 1.5%.
Nedbank, however, noted that the prices of vegetables increased at a slower, but still high rate of 9.4% from 12.6%.
The bank argued that inflation will have a downward trend in the coming months, but it admitted that the decline will be slower than what they had previously anticipated.
Interest Rates
The bank expects the Reserve Bank to leave interest rates unchanged at next week’s Monetary Policy Committee (MPC) meeting.
“The committee will likely hold, as inflation’s descent towards the 4.5% target stalled over the past two months. The Governor has repeatedly stressed that the MPC wants to see headline inflation trending towards the 4.5% midpoint of the target range in a compelling and consistent manner before considering rate cuts. Clearly, headline inflation is not there yet,” Nedbank said.
“We still expect Reserve Bank’s committee to commence its cutting cycle in July, reducing interest rates by 25 bps at each of the three meetings in the second half of the year,” the bank added.
The bank concluded that the prime rate will be at 11% by the end of 2024, down from 11.75%.
Nedbank goes on to predict that there will be two more cuts in the first half of 2025, taking the prime rate to 10.5%.
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