Consumer Inflation

The January 2025 Consumer Price Index (CPI) data revealed revised category weightings, with slight adjustments in names and descriptions. Analysts were keen to see how the new CPI basket would reflect these changes. Water and electricity prices gained importance, with their weightings rising from 3.2% to 3.8% and from 3.8% to 4.1%, respectively. Meanwhile, the weighting for food and non-alcoholic beverages increased from 17.2% to 18.2%. These shifts indicate that basic services and food are becoming larger components of household expenditures and inflation, while the significance of housing, utilities, and financial services has diminished due to changing consumer spending patterns in the face of economic stagnation.

These weightings are subject to change in the next 24 to 36 months as the economic landscape evolves, potentially requiring future adjustments. Despite the changes in category names and descriptions, inflation rose by 3.2% in January 2025 compared to January 2024, slightly above the 3.0% recorded in December 2024 but still aligned with market expectations. This increase was mainly driven by:

• Housing and Utilities: up 4.5%, contributing 1.1 percentage points
• Food and Non-Alcoholic Beverages: up 2.3%, contributing 0.4 percentage points
• Restaurants and Accommodation Services: up 4.9%, contributing 0.3 percentage points

For January 2025, the annual inflation rate for goods was 2.4%, up from 1.9% in December 2024, while services inflation increased by 4.0%, slightly slower than the 4.2% in December. Although these categories are experiencing price hikes, the overall growth rate remains slow, putting pressure on household budgets and diminishing purchasing power. This is evident in trade statistics from SARS, which show lower general import numbers in South Africa. Many households are relying on short-term credit to maintain their lifestyles, increasing their vulnerability to interest rate fluctuations and rising prices, albeit at a slower pace.

On a positive note, the Monetary Policy Committee (MPC) reduced the interest rate by 25 basis points in January 2025. Given moderate inflation, sluggish growth in Q4 2024, an improved and stable electricity supply, and sustained positive market sentiment, the South African Reserve Bank (SARB) may consider further rate cuts in 2025 if inflation expectations remain steady in the first half of the year. Additional rate reductions throughout 2025 could relieve financial pressure on consumers and stimulate medium-term demand.