With food prices set to remain elevated for the coming months, consumers look to the South African Reserve Bank (SARB) with much hope that it will cut interest rates later this week.
SARB Governor Lesetja Kganyago will on Thursday announce the central bank’s Monetary Policy Committee’s (MPC) decision on interest rates in the country.
This past week, Statistics South Africa (Stats SA) data showed that inflation for food and non-alcoholic beverages (NAB) rose slightly by 0.2% to 2.5% in December, up from 2.3% in November, driven by meat and fruit.
On an annual basis, food and non-alcoholic beverages inflation edged up to 1.7% from 1.6% in December 2024 compared to December 2023, with processed food prices unchanged at 3.2% and those of unprocessed food rising.
This meant that overall annual consumer price index (CPI) increased for a second consecutive month, rising from 2.9% in November to 3.0% in December.
SARB’s target range for inflation is between 3%-6%, which is one of the main factors it takes into consideration when increasing or decreasing rates in the country.
Speaking at the World Economic Forum last week, Kganyago warned that South Africa's inflation outlook could be muddied by factors including protectionist policies with the return of U.S. President Donald Trump to the White House.
With other risks including the rand exchange rate, the global oil price and local food prices, there are "too many moving parts" to have a clear view on price pressures, he said.
Old Mutual Group chief economist Johann Els said food inflation is still up but at a much lower pace than a year ago in talking about December versus December.
“So food inflation will likely drift up during the course of the year as it's been very low. But very good rainfalls that we've seen in the May's growing area suggest that maize prices shouldn't go up significantly this year.
“Of course, food is always very difficult to forecast food inflation, food prices because of seasonality and weather patterns, droughts, floods, etc. But I do expect food inflation to drift up during the course of this year, so it's around 5% inflation by the end of 2025. That's a moderate updrift during the course of this year.”
Neil Roets, the CEO of Debt Rescue, told Business Report that SARB’s upcoming repo rate announcement is being closely monitored amid global economic shifts following Donald Trump’s presidency.
“While the predictions of a 25 basis point cut is welcome, the slower pace of rate reductions projected for 2025 signals ongoing challenges for South Africans. Globally, the US Federal Reserve’s moderated approach to rate cuts adds complexity, impacting emerging markets like South Africa by weakening the rand and potentially fuelling inflation,” Roets said.
“Governor Lesetja Kganyago’s comments on the uncertainty surrounding these "moving parts" highlight the delicate balance policymakers must strike to support growth while managing inflation risks. At Debt Rescue, we see the impact of these economic conditions daily. Rising living costs, a weaker rand, and escalating domestic energy prices are eroding disposable income, leaving many South African households struggling to meet financial obligations,” Roets added.
He said that the modest relief from previous interest rate cuts has been insufficient to offset these pressures, and the prospect of fewer cuts in 2025 adds to consumer uncertainty.
“The challenges are particularly severe for South Africa’s most vulnerable. Inflation, though moderated recently, remains burdensome, with food and energy costs disproportionately affecting lower-income groups. The rising cost of credit due to existing debt further traps many in a cycle of financial strain. These conditions underscore the significant difficulties faced by ordinary South Africans trying to cover basic living expenses while managing debt, with many turning to credit to put food on the table and pay for basic goods and utilities,” he further added.
Frank Blackmore, Lead Economist at KPMG South Africa said, “There was a positive impact on inflation for October of -0.8% contribution and that contribution shrunk in December to a - 0.3%. That happened over the last quarter. This still leaves inflation well below the target level of 4.5% and right on the bottom of the range for inflation and still allows SARB to reduce interest rates in the upcoming January meeting and potentially in March and May this year, depending on what happens between now and then.”
Blackmore further said, “One of the other points that I find important is that since August last year, the inflation rate has remained below target. Giving the SARB ample leeway to reduce rates, but we need to consider what's happening internationally and uncertainty specifically with the new administration in the US has meant that potential inflation will not come down as low as initially expected.”
“This could mean fewer rate cuts to take place during the year. It is still our view that there are two to three 25 basis point cuts that will be applied to the South African economy throughout 2025. Unless we get an inflationary shock taking place, such as tariffs or big depreciation in the rand or any other impact that could possibly cause that,” he said.
BUSINESS REPORT