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SOUTH AFRICA: Food & Fuel Prices May Drive Headline CPI Higher

SOUTH AFRICA
EM BulletBulletEmerging Market News

South Africa reports December CPI data at the top of the hour (08:00GMT/10:00SAST), with consensus looking for an acceleration in headline inflation rate to +3.2% Y/Y from +2.9% registered in November. If the consensus call materialises, it would mean that inflation returned to the SARB's +3.0-6.0% Y/Y target range towards the end of 2024. Sell-side notes seen by us ahead of the release suggest that analysts see food inflation as the main culprit behind the anticipated increase in the headline rate, while also pointing to the neutralising effect of higher fuel prices (chiefly on the back of a weaker rand) on transport deflation. Meanwhile, core inflation may have edged higher to +3.8% Y/Y from +3.7%, according to Bloomberg consensus. The report is a key signal for the central bank ahead of its upcoming January 30 monetary policy meeting.

  • Goldman Sachs see a modest increase in headline CPI rate to +3.0% Y/Y from +2.9% in November and see core inflation unchanged at +3.7% Y/Y. They "assume continued weakness in sequential food price dynamics (and declining fruit/vegetable prices for the second month in a row), translating into a decrease in food inflation from +2.3% Y/Y to +2.0%." However, easing annual fuel price deflation may pull in the opposite direction, in their view. They see most key core items "roughly flat."
  • Nedbank forecast headline inflation to climb to +3.3% Y/Y in December from +2.9% prior. In their view, "the increase will mainly reflect rising fuel costs and the normalisation of the base in food inflation." They note that petrol prices rose in December, as the rand depreciated by 4.4% against the dollar, while Brent prices were relatively steady. As a result, transport deflation should be reduced to 2.0% from around 3.3%. Meanwhile, prices of certain food items (e.g. milk, eggs or cheese) soared into the end of 2023 amid intense loadshedding and bird flu outbreak, but resultant base effects are fading. In addition, "services categories such as housing and utilities, domestic workers' wages, and vehicle insurance, which were are surveyed in December, will also contribute to the upside on CPI." Nedbank expect core CPI to soften to +3.6% Y/Y from +3.7%, amid subdued consumer spending. They expect the headline rate to gradually accelerate this year, while adding that it will likely stay below the SARB's +4.5% Y/Y target mid-point until 3Q2025.
  • MUFG expect headline inflation to increase to +3.2% Y/Y, alongside an uptick in core inflation to +3.8% Y/Y from +3.7%. In their view, "this is likely to be attributed to a rebound in food inflation after a temporary decline in November." They note that transport price deflation was probably offset by higher fuel prices last month, but will probably keep inflation "near the lower end of the SARB's (...) target range until mid-2025, before rising toward the midpoint by year-end."
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South Africa reports December CPI data at the top of the hour (08:00GMT/10:00SAST), with consensus looking for an acceleration in headline inflation rate to +3.2% Y/Y from +2.9% registered in November. If the consensus call materialises, it would mean that inflation returned to the SARB's +3.0-6.0% Y/Y target range towards the end of 2024. Sell-side notes seen by us ahead of the release suggest that analysts see food inflation as the main culprit behind the anticipated increase in the headline rate, while also pointing to the neutralising effect of higher fuel prices (chiefly on the back of a weaker rand) on transport deflation. Meanwhile, core inflation may have edged higher to +3.8% Y/Y from +3.7%, according to Bloomberg consensus. The report is a key signal for the central bank ahead of its upcoming January 30 monetary policy meeting.

  • Goldman Sachs see a modest increase in headline CPI rate to +3.0% Y/Y from +2.9% in November and see core inflation unchanged at +3.7% Y/Y. They "assume continued weakness in sequential food price dynamics (and declining fruit/vegetable prices for the second month in a row), translating into a decrease in food inflation from +2.3% Y/Y to +2.0%." However, easing annual fuel price deflation may pull in the opposite direction, in their view. They see most key core items "roughly flat."
  • Nedbank forecast headline inflation to climb to +3.3% Y/Y in December from +2.9% prior. In their view, "the increase will mainly reflect rising fuel costs and the normalisation of the base in food inflation." They note that petrol prices rose in December, as the rand depreciated by 4.4% against the dollar, while Brent prices were relatively steady. As a result, transport deflation should be reduced to 2.0% from around 3.3%. Meanwhile, prices of certain food items (e.g. milk, eggs or cheese) soared into the end of 2023 amid intense loadshedding and bird flu outbreak, but resultant base effects are fading. In addition, "services categories such as housing and utilities, domestic workers' wages, and vehicle insurance, which were are surveyed in December, will also contribute to the upside on CPI." Nedbank expect core CPI to soften to +3.6% Y/Y from +3.7%, amid subdued consumer spending. They expect the headline rate to gradually accelerate this year, while adding that it will likely stay below the SARB's +4.5% Y/Y target mid-point until 3Q2025.
  • MUFG expect headline inflation to increase to +3.2% Y/Y, alongside an uptick in core inflation to +3.8% Y/Y from +3.7%. In their view, "this is likely to be attributed to a rebound in food inflation after a temporary decline in November." They note that transport price deflation was probably offset by higher fuel prices last month, but will probably keep inflation "near the lower end of the SARB's (...) target range until mid-2025, before rising toward the midpoint by year-end."