Food inflation plummets to 14-year low, signalling consumer relief and economic recovery ahead

Dr Elna Moolman, Standard Bank Group’s head of South Africa macroeconomic research, said the downside surprise was largely owing to lower food inflation than expected.

Food inflation had another sharp decline in November, slowing to 2.3% from 3.6% in October, hitting its lowest reading in 14 years, bar December 2010 when it stood at 1.6%.

Moolman says the figures imply significant relief for consumers. “This underscores our expectation of an ongoing recovery in consumer spending in the coming months.” It also vindicates the South African Reserve Bank’s recent decision to start cutting interest rates and signals scope for continued interest rate cuts in 2025.

Koketso Mano, a senior economist at FNB, said the bank sees inflation remaining around 3% in December, with monthly pressure driven by higher fuel prices and, potentially, core inflation with a new survey outcome on housing costs. Food inflation could remain subdued.

“We expect headline inflation to continue rising steadily into 2025, but we do not expect it to surpass 4% until the turn of the year. Risks to the outlook include a more robust normalisation in services inflation, starting with medical insurance in February and followed by other services that would be supported by improving domestic demand,” she said.

Sanisha Packirisamy, chief economist at Momentum Investments, says the group’s annual inflation rate projection of 4.5% for 2024 remains unchanged. “We still anticipate a moderation in inflation to 4.2% in 2025. Our interest rate assumptions are unchanged. We still estimate two more 25-basis-point interest rate cuts in 2025, taking the repo rate to 7.25%. This would be the lowest repo rate since February 2023,” she said.

Looking further abroad, Mano said growing trade restrictions and geopolitical tensions would also drive reflationary pressure across various parts of the globe and keep monetary policy tighter than currently anticipated. “This risk-laden environment and monetary policy recalibration in countries such as the United States would weigh on emerging-market currencies. A weaker rand will have implications for imported and goods inflation.” DM