PPI Growth Eases, Inflation Expectations Tick Higher

This week has seen a round of South African wage/price data, with a report published earlier today showing that factory-gate inflation slowed to +4.6% Y/Y in November from +5.8% prior versus +5.1% expected. This positive surprise in the latest PPI reading came after the release of a BER survey, which suggested that inflation expectations for 2024 and 2025 ticked higher in Q4. Separately, non-farm payrolls rose 2.6% Y/Y in Q3, picking up from Q2's revised +1.7%.

• Meanwhile, data released yesterday showed that headline CPI slowed to +5.5% Y/Y in November from +5.9% prior (versus +5.4% expected), while core CPI edged higher to +4.5% Y/Y from +4.4% (versus +4.4% expected).
  • Citibank wrote that inflation data reaaffirmed their view that the SARB won't hike anymore, but cuts are not coming soon. Their base case is cuts start from May 2024.
  • Goldman Sachs said that they now expect a slower disinflation process for food and revise up their headline inflation forecast from 4.1% to 4.4% for 2024. This introduces hawkish risks to their forecast for the rate-cutting cycle to begin in March 2024.
  • HSBC noted that headline inflation eased but food price growth and core inflation nudged higher, highlighting some upside risks to the inflation outlook. They left their headline inflation forecast unchanged at +5.9% in 2023, +5.4% in 2024, and +5.1% in 2025.
  • JP Morgan thought that the CPI report bore little implication for their SARB view with their inflation profile only changing a tad. Incorporating the November CPI report moves their headline inflation forecast by a tenth higher to a 5.1% average in 2024 (unchanged at 5.9% in 2023). They continue to look for policy easing in steps of 25bp per meeting with a first cut pencilled in for May, provided USD/ZAR does not materially rise to challenge the core outlook.
  • Nedbank said that they expect inflation to ease further in December, ending the year at 5.3%, again reflecting stable global oil prices and a firmer rand. They note that the the risks to their forecasts reside marginally to the upside. Yet, they believe sluggish domestic demand will offset these risks and convince the SARB to start easing interest rates from May onwards, with four reductions totalling 100bp.