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Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
January 22, 2025

Consumer Inflation

December 2024

In December, South Africa’s inflation increased slightly to 3.0%, driven primarily by rising costs in housing, services, and food. Despite these pressures, the Monetary Policy Committee’s recent rate cut of 25 basis points may ease financial burdens on consumers. Positive market sentiment and improved electricity supply suggest a stable inflation outlook ahead.

Inflation in South Africa rose slightly from 2.9% in November to 3.0% in December, marking a 0.1% increase in monthly inflation. This rise was primarily driven by:

  • Housing and Utilities: Up 4.4%, contributing 1.0 percentage points
  • Miscellaneous Goods and Services: Up 6.6%, adding 1.0 percentage points
  • Food and Non-Alcoholic Beverages: Up 2.5%, contributing 0.5 percentage points
  • Alcoholic Beverages and Tobacco: Up 4.3%, adding 0.3 percentage points

While these categories continue to experience price increases, the growth rate remains relatively slow. Rising costs are straining household budgets and eroding consumers’ purchasing power, which is reflected in trade statistics released by SARS. Many households are still turning to short-term credit to sustain their lifestyles, increasing their vulnerability to interest rates and rising product prices—albeit at a slower pace.

It’s important to note that these price increases are mainly driven by external factors rather than domestic demand. Issues such as electricity supply challenges, costs associated with alternative power generation, and rising import prices that are still affecting consumers. Additionally, the recent depreciation of the rand following Donald Trump’s re-election may also impact its value in the coming months, especially during the first hundred days of the new U.S. administration.

On a positive note, the Monetary Policy Committee (MPC) lowered the interest rate by 25 basis points in November, slightly less than the 50 basis points economists had anticipated. Another reduction of 25 basis points is expected during the January MPC meeting. These potential rate cuts could alleviate financial pressure on consumers and stimulate demand in the medium term.

With moderating inflation, sluggish economic growth for Q3 and Q4 of 2024, improved and stable electricity supply, and sustained positive market sentiment, the South African Reserve Bank (SARB) is likely to consider further interest rate reductions in early 2025 and beyond if inflation expectations hold steady in the first half of the year.

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A Watershed Moment: Global Ceasefire and Massive Oil Correction Offer Crucial Relief for the SA Economy

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The Great Fuel Buffer

South Africa finds itself balancing global energy shocks with decisive local action. As rising oil prices threaten to strain consumers and key industries, government intervention has softened the immediate impact—highlighting both the urgency of the moment and the need for smarter, more resilient fiscal tools to manage future volatility.

SARB opts for Strategic Resilience

The South African Reserve Bank has opted for a “hawkish hold,” maintaining the repo rate at 6.75% despite headline inflation hitting a milestone low of 3.0%. Governor Lesetja Kganyago emphasised that while the inflation target has been met, the MPC remains wary of a potential “energy tax” on the economy, driven by global oil prices surging above $100 per barrel. Consequently, the Bank has adopted a cautious, forward-looking stance, slightly lowering the 2026 GDP growth forecast to 1.1% to account for these external shocks and ensure long-term currency stability.

Navigating the Geopolitical Crosswinds

South Africa faces renewed inflation risks despite brief market relief, driven by rising fuel costs and import dependence. The SARB is likely to hold interest rates to protect price stability.

The Perfect Storm:

This morning, South Africans received what should have been a crowning achievement for the South African Reserve Bank (SARB). Data from Stats SA revealed that the Consumer Price Index (CPI) cooled to 3.0% in February, down from 3.5% in January. This lands the country perfectly on the SARB’s new, more ambitious inflation target.