Financially constrained consumers in South Africa will continue forking a bit more for food and beverages at the tills as headline inflation continues to be on a steady upward swing, rising for the third consecutive month in January 2025.
This comes as data from Statistics South Africa (Stats SA) on Wednesday 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%.
The largest single component of CPI however is food prices influenced by both domestic and international agricultural food prices.
In January, food and non-alcoholic beverages inflation saw a 2.3% year-on-year outcome, from 2.5% in December, with high statistical base effects year on year once again keeping the measure moderate in the face of the start of the year general price pressure increases.
This headline print comes as Eskom has been granted a tariff increase of more than 12% for the next financial year, which is going to cripple household income expenditures as more money goes to pay for electricity.
Patrick Kelly, chief director for price statistics at Stats SA, said prices increased by 0.8% month-on-month in January following a 0.5% month-on-month rise in December.
“Prices for cereal products increased by an annual 3.8% from 3.7% in December. Maize meal prices rose by 4.8% between December and January, taking the annual rate to 10.1%. The annual increase for samp was 15.4%,” Kelly said.
“In contrast, prices dropped for both white and brown bread, with the annual increase for white bread being 1.9% and for brown bread, 1%. Inflation for hot beverages remains sticky at high levels. The annual increase for this category was 13.7% in January, slightly up from the 13.5% in December. Overall, prices increased by 1% between December and January.”
Economists and investors are now fearing that the continued rise in consumer prices will force the South African Reserve Bank (SARB) to take a cautious monetary policy stance and pause interest rate cuts.
Nedbank economist, Johannes Matimba Khosa, said the gradual upward drift from a low base will likely continue throughout 2025 as the goods inflation will start edging up, driven by food and fuel prices.
Khosa said the upside will be kept in check by subdued services inflation, which is expected to moderate further in the first half before reversing course towards year-end.
“We still expect headline inflation to average 4% in 2025, down from 4.4% in 2024. Today's inflation numbers are relatively benign, while the rand has stabilised despite the uncertain global landscape,” he said.
“Unless circumstances change dramatically, current fundamentals support a further 25-bps reduction in interest rates in March. However, we believe the MPC will likely pause, leaving the interest rate unchanged in March, focussing on the upside risks to the inflation outlook emanating from the threat posed to the rand and imported inflation from a global trade war, sticky global inflation and the increasing likelihood of a prolonged pause in US interest rates.”
Mark Phillips, head of portfolio management and analytics at PPS Investments, noted that South African policymakers implemented a 25 basis point reduction in interest rates to 7.5% last month, following two quarter-point reductions in 2024.
“South African Reserve Bank Governor Lesetja Kganyago cautioned that escalating tariffs pose a risk to the global economy and may hinder the disinflation process, potentially disrupting central banks’ interest rate-cutting cycles,” Phillips said.
“The market now anticipates a 24% probability of a 25 basis point reduction of the policy rate at the SARB’s upcoming meeting scheduled for March 20.”
BUSINESS REPORT