South African inflation expected to ease in 2024
A Reuters poll of 19 economists found that inflation is expected to slow down next year due to global trends that are negatively impacting price growth and weak domestic consumer spending.
The median results of the poll predict that inflation will drop from an average of 5.8% in 2023, to 5.0% in 2024, and 4.5% in 2025.
These numbers are expected to calm the nerves of the South African Reserve Bank (SARB), whose comfort zone for inflation sits between 3%-6%.
In her macro-economic analysis of the country, Chief Economist of Investec, Annabel Bishop, said that “2024 is expected to see lower interest rates and inflation overall, both globally and domestically, with interest rate cuts in the US sparking [emerging markets] currencies strength.”
Chief economist at BNP Paribas, Jeffrey Schultz, believes that the possibility of disinflation in 2024 is high.
In a note written to Reuters, Shultz said that “easing global supply bottlenecks helping to push core goods prices lower in most regions, coupled with domestic input prices which entered deflationary territory back in July already, are likely to impact still sticky core goods prices into next year.”
Shultz also argues that a lack of demand in the South African economy is driving inflation down.
However, to see if this prediction becomes a reality is a waiting game. Policymakers are facing the challenge of managing inflation risks and determining the appropriate timing for interest rate cuts in major economies.
As a result, the SARB is anticipated to hold off on reducing its repo rate until May.
Additionally, the SARB is predicted to lower interest rates by 25 basis points every quarter starting from May and continuing until early 2025. This will result in a repo rate of 7.00% by the end of 2025. Currently, the repo rate stands at 8.25%.
The poll also forecasts that the economy will expand 1.3% next year, and 1.7% in the following year. However, “South Africa’s forecasts are still held back by crime, logistics and power crises, but potential improves,” said Bishop.
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