Reza Hendrickse, Portfolio Manager at PPS Investments
Annual consumer inflation slowed meaningfully to 3.0% y/y in February, down from 3.5% in January, marking a renewed move toward the SARB’s preferred 3% inflation objective. The outcome was slightly below market expectations, reinforcing confidence that South Africa’s disinflation process remains on track. On a monthly basis, prices rose 0.4%, indicating that while annual inflation is easing, some underlying price pressures persist.
The composition of the print was encouraging and broad‑based. Housing and utilities, food and non‑alcoholic beverages, and insurance and financial services remained the largest contributors to headline inflation. A key development was the synchronised moderation across both goods and services inflation. Goods inflation declined sharply to 1.9% y/y (from 2.7%), while services inflation eased to 3.8% y/y (from 4.2%). This points to a more entrenched and balanced disinflation process across the CPI basket.
A major driver of the downside surprise was transport, which made a negative contribution to annual inflation. This reflects the persistent decline in fuel prices, with transport prices down 2.1% y/y and fuel inflation falling by more than 10% y/y. Fuel is a powerful transmission channel into headline inflation and has thus far provided meaningful relief to consumers and businesses. Going forward however, the war in the Middle East now poses a threat to the price of fuel, with the oil price having risen significantly in March.
Food inflation showed signs of stabilisation at 3.7% y/y, with some categories, notably fruits and vegetables, recording outright price declines. That said, pressures remain uneven. Meat inflation remains elevated in double‑digit territory, highlighting persistent supply-side constraints in certain segments. Housing and utilities inflation remains firm at 4.8% y/y, driven largely by administered prices such as electricity and water, which continue to outpace headline inflation.
For households, the February print offers welcome relief at the margin. Lower fuel prices and moderating goods inflation should ease pressure on transport and retail costs, while the broader disinflation trend supports real income recovery, particularly for salaried workers and retirees. However, the inflation experience remains uneven, with administered prices, insurance and healthcare continuing to rise faster than headline inflation.
From a policy perspective, the data further entrenches the SARB’s disinflation narrative. With inflation now sitting at the midpoint of the target band, and increasingly aligned with the revised 3% objective, the SARB is likely to maintain a cautious but accommodative bias. That said, the Bank is unlikely to rush.
Global risks have risen in March following the attack on Iran, which is placing upward pressure on the oil price, as well as posing the risk of renewed rand weakness in a higher‑for‑longer global rate environment. The sustainability of low inflation appears contingent on external developments, particularly energy prices and global financial conditions, alongside continued domestic policy credibility and currency stability.
ENDS
