Annual CPI picks up to 3.2% in January while food price inflation maintains downward trend

South Africa’s Consumer Price Index (CPI) accelerated slightly on a year-on-year basis in January to 3.2% from 3.0% in December with slowing food inflation helping to contain the upward trend. 

The data, based on a reconfigured basket and delayed for a week by Statistics South Africa as it got to grips with the changes, were in line with market expectations and firmly underline the point that inflationary pressures remain muted, bringing added relief to hard-pressed consumers.

“Inflation should remain subdued in H1 2025 before rising steadily into the second half of the year. We see headline inflation posting 3.5% in February and settling above 5% by the end of the year. This will be mainly on account of fading positive base effects and improving demand. Nevertheless, we currently anticipate that average inflation will be softer than in 2024,” Koketso Mano, FNB senior economist, said in a commentary on the data.

That would keep CPI anchored within the South African Reserve Bank’s 3% to 6% target range and there are hopes for further rate cuts this year, although economists are divided on the scope and timing of such moves. 

But Mano pointedly noted that: “Risks to the outlook include a more robust normalisation in services inflation as well as a faster acceleration in administered price inflation, especially water services. In addition, any hike in the VAT rate would raise annual inflation.”

Last week’s scheduled presentation of the annual Budget was of course torpedoed by a vicious spat over VAT, which Treasury was seeking to hike by 2 percentage points to 17%. 

As a regressive tax, this would have a disproportionate impact on the poor at a time when slowing food inflation has been taking less of a bite out of the incomes of lower-income households. 

Read more: What a 2 percentage point VAT increase would actually cost SA households

“The re-weighting of the CPI basket has not shifted the trend of moderating food price inflation we have been observing in recent months. The data ... show that consumer food price inflation slowed to 1.5% in January 2025 from 1.7% in December 2024. This deceleration was underpinned by most products in the food basket,” said Wandile Sihlobo, chief economist at the Agricultural Business Chamber of SA. 

“With that said, for the first half of 2025, grain-related products remain the upside risk to consumer inflation following a surge in white maize prices in recent months because of the poor crop harvest due to [last season’s] drought.”

On that front, all eyes will be on the Crop Estimates Committee’s first production forecast due for release on Thursday, 27 February, for summer crops including the staple maize. DM