South Africa’s inflation dipped for the second month running, hitting a four-month low of 5.1% in December. This easing heat, fuelled by slower food and fuel price hikes, has reignited hopes for a rate cut from the South African Reserve Bank (SARB). However, don’t expect immediate action.
While the trend is encouraging, inflation remains above the SARB’s 4.5% target midpoint. Core inflation, excluding volatile items like food and energy, also held steady at 4.5%. This suggests broader price pressures persist, keeping the SARB cautious.
Governor Kganyago has hinted a rate cut might be on the cards if inflation falls sustainably towards the target. But with the global economic outlook uncertain and risks like El Niño’s potential impact on food prices, the SARB is likely to hold rates steady at 8.25% for now.
The next rate decision is tomorrow, and while a hold is expected, the SARB’s tone will be crucial. Look for clues about their future path: will they sound dovish, hinting at a potential easing in the near future, or remain hawkish, emphasizing continued vigilance against inflation?
One thing’s clear: South Africa’s inflation fight is entering a crucial phase. The next few months will be key in determining whether the SARB starts chipping away at borrowing costs or maintains its cautious stance.
Sources:Trading Economics, The South African, Statistics South Africa, Bloomberg, Financial Post.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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