South Africa: Inflation drops to lowest level since August in December
Inflation dropped to 5.1% in December, following November’s 5.5%. December’s result marked the lowest inflation rate since August. Looking at the details of the release, the moderation was largely driven by slower increases in prices for food and beverages, as well as for transportation. These more than offset a stronger rise in housing and utilities prices.
Accordingly, the trend pointed down mildly, with annual average inflation coming in at 5.9% in December (November: 6.1%). Meanwhile, core inflation was unchanged, coming in at November’s 4.5% in December.
Finally, consumer prices were unchanged over the previous month in December, after November’s 0.09% drop.
Inflation eased for the second consecutive month in December but should be picking up from December’s level in Q1 2024. It will then gradually ease after Q1, receding to the mid-point of the South African Reserve Bank (SARB)’s 3.0–6.0% target band by Q4. Disinflationary pressures will stem from a high base effect, the lagged impact of elevated interest rates throughout 2023 and a weaker pace of depreciation of the rand. That said, additional increases in electricity taxes pose an upside risk.
Looking further ahead, analysts at the EIU added:
“Barring new domestic and global shocks, inflation will […] stay comfortably within the SARB’s target range (apart from any temporary breaches), underpinned by a steady decline in global oil prices, prudent monetary policy and smoother global logistics.”