CPI steady at 3.2% in February, but rate cut uncertain and poor feel bite as maize prices surge

19 Mar 2025

South African consumer inflation remains muted, but lower-income households are still forking out significantly more for a key portion of their caloric intake. And the prospect of another interest rate cut on Thursday is a tight call.

South Africa’s Consumer Price Index (CPI) remained steady at an annual rate of 3.2% in February but surging prices for the staple maize mean that poor households are still feeling the bite of inflation.

And while the overall read is benign, the South African Reserve Bank (SARB) may not cut rates again on Thursday, 20 March 2025, as geopolitical storm clouds swirl on the horizon.

With or without a rate cut, the poor and working class are still bearing the burden of last summer’s El Niño-triggered drought, which slashed South Africa’s maize harvest by 23% from the previous season.

“Maize meal inflation reached a 17-month high and samp a 19-month high in February. The price index for maize meal increased by an annual 10.6% and samp by 18.7%,” Statistics South Africa (Stats SA) said in a statement on Wednesday.

“In terms of average prices, a 5 kg bag of maize meal was R74.91 in February, up from R68.52 a year ago. The price for samp (1 kg) increased to R22.86 from R19,28 over the same period.”

This is a reflection of price pressures in the production chain.

“According to the latest producer price index (PPI), annual farm inflation for maize was 64.7% and factory-gate inflation was 15.0% in January,” Stats SA said.

So while inflation is generally tame — and food inflation overall in February was a subdued 1.9% — lower-income households are still forking out significantly more for a key portion of their caloric intake.

This season’s maize crop is estimated to be up 8% with production of the staple white variety seen 22% higher, but input costs for farmers are steep and it will take a while for a better harvest to work its way through the value chain and slow the rise of consumer prices.

To cut rates or not?

The main CPI reading, unchanged from January, means that consumer inflation remains near the bottom of the Reserve Bank’s 3% to 6% target range — a point that will not be lost on its Monetary Policy Committee when it makes its next interest rate announcement on Thursday.

After three consecutive cuts of 25 basis points in the face of a brightening inflation outlook — taking its repo rate to 7.50% and the prime lending rate for consumers to 11.00% — the prospects for further loosening this time are far from clear amid mounting geopolitical uncertainties and the escalating trade wars of Trump 2.0.

“This week’s repo rate decision will come down to a hold or a cut,” said Jee-A van der Linde, a senior economist at Oxford Economics Africa.

“It will be a tight call, but we expect the Reserve Bank will adopt a holding pattern stance until Q3 2025. More certainty regarding the economic impact of trade tariffs, the resumption of US Fed rate cuts together with low and stable domestic inflation could encourage the Sarb to loosen policy further later in the year.”

The Monetary Policy Committee’s other concerns will include the inflationary impact of the proposed 0.5 percentage point VAT hike this year and next which — if the budget is passed in its current form — will mean it will probably revise its inflation forecasts upward from its previous meeting.

Demand pressures, which have long been muted, are also now bubbling.

Stats SA also said on Wednesday that retail trade sales rose a robust 7.0% year-on-year in January compared with 3.2% in December. This is partly a reflection of expenditure linked to early pension withdrawals under the two-pot reforms introduced late last year.

The bottom line is that lower-income households are still confronted by maize-linked inflation, and while the overall picture is not bad, another rate cut that would bring further relief to all income groups in South Africa may not be on the cards this week. DM

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To cut rates or not?