The slight uptick in the headline reading still leaves inflation below the central bank’s 3% to 6% target band. Image: Supplied

Inflation inches up, leaving rate cut hopes intact

Slight rise in inflation bolsters expectations for a January rate cut as the Sarb maintains cautious optimism amidst global uncertainty.

11 Dec 2024, 09:05 by Ntando Thukwana, Bloomberg · Moneyweb

South Africa’s inflation rate crept up by less than expected in November, creating room for the central bank to deliver another cut in borrowing costs next month.

The consumer price index rose 2.9% in November from a year earlier, compared with 2.8% the prior month, Pretoria-based Statistics South Africa said Wednesday. That was slower than the 3.1% median of 15 economists’ estimates in a Bloomberg survey.

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Forward-rate agreements, used to speculate on borrowing costs, see the South African Reserve Bank lowering its benchmark policy rate by a further 75 basis points over the next 12 months, little changed from earlier. The local currency was slightly stronger at R17.84 per dollar.

Food and non-alcoholic beverages inflation helped keep the headline number in check. It witnessed another sharp decline in November, slowing to 2.3% from 3.6% in October, marking its lowest rate since December 2010.

Read: IMF supports SA adopting lower inflation target

The slight uptick in the headline reading still leaves inflation below the central bank’s 3% to 6% target band, and will likely encourage the monetary policy committee to lower its benchmark interest rate by another 25 basis points at its next meeting on 30 January. The MPC has cut borrowing costs by 50 basis points to 7.75% since starting to ease policy in September.

Read: MPC repo rate misfire

Governor Lesetja Kganyago signalled this week that officials would proceed carefully on interest-rate adjustments, given the unpredictable outlook for the global economy. A combination of factors including higher domestic fuel prices, a weaker rand and concerns about US President-elect Donald Trump’s trade policies are all adding to a murkier outlook on inflation.

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Read: SA cautious on rates to avoid regrets, Kganyago says

“In an environment of uncertainty, it is very important for the central bank to move with caution and not add to the noise that you have in the data,” Kganyago said. “We should not be creating uncertainty by making moves that we would later regret.”

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