South Africa: Inflation increases in December
Latest reading: Inflation came in at 3.0% in December, up from November’s 2.9%. Despite accelerating, inflation came in at the lower bound of the South African Reserve Bank’s (SARB) 3.0–6.0% target band, and surprised markets to the downside. Looking at the details of the release, transportation prices fell at a more moderate pace in December compared to the previous month, while price pressures for food and non-alcoholic beverages picked up pace.
Still, the trend pointed down with annual average inflation falling to 4.4% in December (November: 4.6%). Meanwhile, core inflation edged down to 3.6% in December from the previous month’s 3.7%.
Finally, consumer prices increased 0.09% from the previous month in December, after the flat result logged in November.
Outlook: Our panelists expect average inflation to recede to a five-year low this year to just below the midpoint of the SARB’s target range. The moderation should be the result of a stronger rand, a tougher base of comparison, and past hikes by the central bank to interest rates. That said, upside risks linger, including extreme weather, renewed power cuts, U.S. protectionist policies and stronger-than-projected private consumption growth. Changes in oil prices and the trajectory of fiscal policy remain factors to monitor.
Meanwhile, December’s slower-than-expected acceleration in inflation has stirred market hopes of another interest rate reduction when the SARB reconvenes next on 30 January.