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SOUTH AFRICA: Focus Turns To Next Week's SARB Meeting After Benign CPI Data

SOUTH AFRICA
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  • Headline inflation quickened by less then expected to +3.0% Y/Y in December, missing the consensus forecast of +3.2%. Core inflation slipped to +3.6% Y/Y versus +3.8% expected.
    • Commerzbank wrote that the inflation data "should have given the green light for a further rate cut" next week. They noted that "the current inflation is accompanied by improvements on the supply side, which are eliminating bottlenecks and therefore make lower prices possible," which is "consistently good news" and thus "argues in favour of a falling risk premium for the currency."
    • Goldman Sachs pointed to the "third consecutive large downside surprise to inflation and the fifth downside surprise in the last six months, driven by weak underlying core dynamics as well as an easing of food supply shocks from last year." They stick with their forecast for deeper disinflation than expected by the market. Their benign outlook "derives mainly from our view that the economy has been operating significantly below potential in recent years, implying the presence of a large and disinflationary negative output gap" (which is at odds with the mainstream/SARB view).
    • JP Morgan noted that housing data accounted for much of the downside surprise, helping extend the pattern of softer-than-expected inflation and cement broad-based disinflation. They now expect inflation to average at +4.1% Y/Y this year. They still look for a 25bp rate cut next week and "tentatively retain (...) further projection of a further reduction in 3Q25."
    • Nedbank said that the main contributors to the annual increase in prices were "food and non-alcoholic beverages," "housing and utilities," miscellaneous goods and services" and "transport." Meanwhile, the downtick in core inflation "reflected subdued underlying price pressures as restrictive monetary policy kept demand in check, while structural reforms improved supply conditions." They expect inflation to remain below +4.5% Y/Y for most of the year and remind that the next release will be based on a new inflation basket - although this is not likely to significantly shift their forecasts. They expect another SARB rate cut next week, followed by another cut in March.
  • South Africa's real retail sales expanded by 7.7% Y/Y in November, exceeding the +5.8% median estimate in a Bloomberg survey.
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  • Headline inflation quickened by less then expected to +3.0% Y/Y in December, missing the consensus forecast of +3.2%. Core inflation slipped to +3.6% Y/Y versus +3.8% expected.
    • Commerzbank wrote that the inflation data "should have given the green light for a further rate cut" next week. They noted that "the current inflation is accompanied by improvements on the supply side, which are eliminating bottlenecks and therefore make lower prices possible," which is "consistently good news" and thus "argues in favour of a falling risk premium for the currency."
    • Goldman Sachs pointed to the "third consecutive large downside surprise to inflation and the fifth downside surprise in the last six months, driven by weak underlying core dynamics as well as an easing of food supply shocks from last year." They stick with their forecast for deeper disinflation than expected by the market. Their benign outlook "derives mainly from our view that the economy has been operating significantly below potential in recent years, implying the presence of a large and disinflationary negative output gap" (which is at odds with the mainstream/SARB view).
    • JP Morgan noted that housing data accounted for much of the downside surprise, helping extend the pattern of softer-than-expected inflation and cement broad-based disinflation. They now expect inflation to average at +4.1% Y/Y this year. They still look for a 25bp rate cut next week and "tentatively retain (...) further projection of a further reduction in 3Q25."
    • Nedbank said that the main contributors to the annual increase in prices were "food and non-alcoholic beverages," "housing and utilities," miscellaneous goods and services" and "transport." Meanwhile, the downtick in core inflation "reflected subdued underlying price pressures as restrictive monetary policy kept demand in check, while structural reforms improved supply conditions." They expect inflation to remain below +4.5% Y/Y for most of the year and remind that the next release will be based on a new inflation basket - although this is not likely to significantly shift their forecasts. They expect another SARB rate cut next week, followed by another cut in March.
  • South Africa's real retail sales expanded by 7.7% Y/Y in November, exceeding the +5.8% median estimate in a Bloomberg survey.