South Africa’s inflation cools in December

South Africa’s annual consumer price inflation (CPI) continued its downward trend by cooling slightly in December.

StatsSA announced today that annual CPI was 5.1% in December 2023, down from the 5.5% recorded in November 2023.

In June, the inflation rate fell within the South African Reserve Bank’s (SARB) target range of 3% to 6% for the first time since April 2022.

July’s rate (4.7%) was also within the SARB’s target range of 3% to 6% and far closer to its target midpoint of 4.5%.

However, inflation started trending upward again in August and reached a peak of 5.9% in October before falling again slightly in November.

According to Stats SA, the consumer price index was unchanged in December 2023.

The main contributors to the 5.1% annual inflation rate were:

  • Food and non-alcoholic beverages increased by 8.5% and contributed 1.5 percentage points;
  • Housing and utilities increased by 5.7% and contributed 1.3 percentage points;
  • Miscellaneous goods and services increased by 5.1% and contributed 0.7 of a percentage point.
  • Transport increased by 2.6% and contributed 0.4 of a percentage point.

In December, the annual inflation rate of goods was 6.4%, down from 7.1% in November. It was 3.8% for services, unchanged from November.

This data will inform the Monetary Policy Committee’s (MPC) interest rate decision at its meeting tomorrow.

At its last MPC meeting in November, the SARB again elected to keep the interest rate hiking cycle that has been ongoing since November 2021 on pause.

However, the MPC warned that this was merely a pause in the hiking cycle rather than the end, and it would remain dependent on data for future decisions.

In a recent interview, SARB Governor Lesetja Kganyago said the MPC wants inflation to sustainably fall to the mid-point of the target range – 4.5% – before interest rate cuts will be considered.

Many experts expect this to happen in the second half of this year and for South Africa to see its first interest rate cut in July 2024.

Investec chief economist Annabel Bishop forecasts that CPI inflation will reach 4.5% year-on-year in July this year, dip to 3.4% in October, and move back towards 4.0% in December.

Bank of America also expects the MPC to only cut rates in the second half of the year, with the first cut in July. 

Most experts Daily Investor asked expect the SARB to keep interest rates steady at its meeting tomorrow.


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