Bad news for food and petrol prices in 2025

Inflation has declined markedly in 2024, but food and fuel prices are likely to increase in 2025.

Stats SA data showed that annual producer price inflation (final manufacturing) decreased by 0.1% in November 2024, up from the 0.7% decrease in October 2024.

The producer price index (PPI) remained unchanged month-on-month in November 2024.

Coke, petroleum, chemicals, rubber, and plastic products fell by 8.1% yoy, subtracting two percentage points from the headline PPI. However, the rate of decline moderated from 10.1% in October.

“The drag came from fuel prices, with petrol and diesel prices down 14.4% yoy and 23.5%, respectively, reflecting the impact of lower global oil prices,” said the Nedbank Economic Group.

“Over the period, the Brent crude oil price dropped by 8.3% yoy due to ample supply and subdued global demand. Moreover, chemicals declined for the first time in over a decade, down by 0.2% yoy off last year’s high base. In contrast, rubber and plastics prices accelerated.”

 PPI is a leading indicator for consumer inflation, and decreases are good news for prices at the tills.

CPI stood at 2.8% in October and 2.9% in November – far below the South African Reserve Bank’s (SARB’s) midpoint target of 4.5%. Food inflation also hit a 14-year low in November.

Not going to last long

Nedbank said that recent inflation outcomes have been encouraging, but inflation is still expected to drift higher in 2025 due to higher food and fuel prices.

“Food inflation will rise off a low base, further amplified by the impact of the earlier dry weather. Global disinflation will also slow down,” said Nedbank.

“However, improved domestic operating conditions due to stable electricity supply and further efficiency gains in logistics should help contain input costs and operating expenses, which, together with the predictions of higher rainfall will partly mitigate the upside.”

Global oil prices are also set to rise slightly as global demand improves and OPEC extends production cuts.

Nedbank added that ongoing conflicts in the Middle East also still threaten oil prices.

“Meanwhile, the stronger US dollar will likely weigh on the rand and other emerging market currencies.”

“The dollar will benefit from the expected change in US economic policies under Donald Trump’s administration, which could lead to sticky global inflation and raise the floor on interest rate cuts.”

“On the domestic front, the threat of electricity tariffs and other administered prices rising more than expected and wages outpacing productivity could also exert pressure. We forecast PPI to average around 4% in 2025.”

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