Inflation in South Africa has experienced a notable decline in 2024, but economists predict that food and fuel prices will drive an upward trend in 2025.
According to data from Statistics South Africa (Stats SA), annual producer price inflation (PPI) for final manufacturing dropped by 0.1% in November 2024, a significant improvement compared to the 0.7% decrease observed in October. Despite this, the PPI remained stable month-on-month in November.
Key sectors such as coke, petroleum, chemicals, rubber, and plastics saw notable declines, with prices dropping by 8.1% year-on-year, contributing two percentage points to the overall reduction in PPI. However, the rate of decline moderated from 10.1% in October. Fuel prices, particularly petrol and diesel, were down by 14.4% and 23.5% year-on-year, respectively, reflecting lower global oil prices. The Brent crude oil price fell by 8.3% year-on-year, driven by ample supply and sluggish global demand.
Nedbank Economic Group pointed out that the decrease in producer prices is beneficial for consumer prices, with the consumer price index (CPI) standing at 2.8% in October and 2.9% in November, well below the South African Reserve Bank’s (SARB) target of 4.5%. Food inflation also dropped to its lowest level in 14 years in November.
Despite the positive inflation trends in 2024, experts caution that this relief may be short-lived. Nedbank predicts that inflation will likely rise in 2025, driven by increases in food and fuel prices. Food inflation is expected to pick up due to a low base and the lingering effects of earlier dry weather. The global disinflationary trend is also anticipated to slow.
However, there are some mitigating factors. Improved domestic conditions, including stable electricity supply and better logistics efficiency, should help keep input costs and operating expenses in check. Additionally, predictions for higher rainfall could ease some pressures on food prices.
On the global stage, oil prices are projected to rise slightly as global demand strengthens and OPEC extends production cuts. The ongoing conflicts in the Middle East also pose risks to oil prices, which could further elevate costs. Additionally, the stronger US dollar is expected to exert pressure on the South African rand and other emerging market currencies.
Nedbank warned that electricity tariffs and other administered prices, along with wages potentially outpacing productivity, could create further inflationary pressures. The bank forecasts PPI to average around 4% in 2025, signaling that while inflation may moderate in the short term, rising costs in food, fuel, and other key sectors could lead to higher prices in the year ahead.
