Consumer inflation hit 3.2% in January from 3.1% in December, Statistics South Africa (StatsSA) said. In 2020, inflation averaged 3.3%, its lowest in 16 years. Combined with the economic meltdown triggered by the lockdowns to contain the Covid-19 pandemic, this gave the South African Reserve Bank (SARB) the room it needed to cut interest rates by 300 basis points in 2020.

The SARB’s inflation target is 3% to 6%, so it still has further space for monetary easing in 2021. Food inflation, which has been a concern, slowed in January to 5.6% from 6.2% the previous month. 

The case for a cut — or at least the case not to hike rates any time soon — is supported by other data. Demand remains muted, with retail sales falling in December for a ninth consecutive month by 1.3% year on year, and for 2020 by 6.9% from 2019 levels. 

“Ultimately, retail sales volumes in 2020 performed better than initially expected, supported by the TERS payments, government’s extended social grants programmes and the low interest rate environment. Positively, some of this support has been extended to March this year. The longer-term outlook, however, remains uninspiring, weighed on by rising unemployment and generally low consumer sentiment,” FNB senior economist Siphamandla Mkhwanazi said in a note on the retail sales data.

To sum up: there is no explosion of pent-up demand seen on the immediate horizon to rock the CPI boat. The economy is simply too weak and unemployment is too high. 

Still, there are price pressures emerging. Eskom tariffs are set to rise more than 15% in the next financial year, and oil prices have made a surprising rally in 2021, leading to rising costs at the pumps for South African consumers. 

While easing in January, food inflation remains elevated, which is also a major social concern against the backdrop of the just-published findings of the National Income Dynamics Study — Coronavirus Rapid Mobile Survey, which found hunger levels are “disturbingly high”. 

As always, the SARB’s Monetary Policy Committee (MPC), which next meets in March, has a lot to chew on. BM/DM