Economists expect small increase in inflation to 3%

While the inflation rate was 2.8% in May and April, most economists expect that it will increase by 0.2% to 3% for June, although they do not believe that the small increase will be enough to spur the Reserve Bank on to lower the repo rate again next week.

Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says the BER expects a modest acceleration in headline inflation to 3.0%. “Higher food prices likely contributed to the uptick, while another large annual decline in fuel prices continued to exert downward pressure.”

 However, she says, the fuel-related drag is expected to diminish in the coming months, which should see headline inflation drift higher, although it is not expected to breach the 4.5% target midpoint on a sustained basis.

“The upward move highlights the challenge facing the South African Reserve Bank (Sarb) if it aims to shift expectations toward a lower 3% target, as it must do so even as inflation is gradually rising. The inflation print will feed into market expectations for rate cuts, although it is unlikely to change our expectation for another 25 basis points repo rate cut during Sarb’s July meeting.

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Still pressure on inflation from high meat prices

Elize Kruger, an independent economist at Carpediem, says June is a high survey month for inflation because a number of additional surveys will affect the outcome. These are specifically quarterly surveys for actual rentals, owners’ equivalent rent, sectional title levies, domestic services, taxi, bus and train fares, school transport and motor vehicle insurance.

“On food prices, there is still pressure on the heavily weighted meat category due to the outbreak of foot and mouth disease among cattle, playing havoc with the supply of carcasses at abattoirs.  A temporary shortage of meat (given that some feedlots are under quarantine and cannot trade), is resulting in higher meat prices on wholesale level, being passed through to consumer level.

“Seasonal downward pressure on fruit and vegetable prices in June should partially offset the impact. Overall, food price inflation for June is forecast to increase to 4.5% based on a 0.4% growth rate compared to 4.4% in May.”

She points out that June will see the last of the recent lower fuel price movements affecting inflation positively, offsetting some of the upward pressure stemming from higher food prices. Fuel price inflation remained well into deflationary territory. Kruger forecasts that inflation will increase to 3.0% in June unchanged from May.

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Low inflation important structural tailwind for economy

“The low inflation environment remains an important structural tailwind for the economy in 2025. Firstly, the favourable inflation environment created ample scope for the Sarb to cut the repo rate further as they remain uncomfortably high in an economy hardly growing by 1% while our inflation target is still 4.5%.”

Kruger expects that the Monetary Policy Committee (MPC) of the Sarb will cut the repo rate by another 25 basis points next week and that it will likely be the final cut in the current downward cycle.

About the possible effect of US import tariffs on South Africa’s inflation, Kruger says as long as South Africa do not retaliate with higher import tariffs on our main import trading partners and the rand exchange rate remains stable, the higher US tariffs will hit the local economy rather on growth and employment, which will be exerting downward pressure on prices given lower demand.

“Also, if products destined for export markets remain available in the South African market due to higher tariffs imposed on US consumers, the higher supply could also result in lower pricing in the local economy, such as in the case of fruit. 

“However, if a scenario plays out where global supply chains are disrupted, resulting in a shortage of a product, there could potentially be upward pressure on import prices, but the impact of higher US tariffs is by no means necessarily negative for local inflation.”

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Inflation expected to be contained over forecast horizon

Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say until now inflation continued to reflect the benefit of base effects, contained demand and weak exchange rate pass-through, as well as cost-push pressures.

They expect inflation to remain around the 3% mark, with fuel deflation and underlying inflation at 3%, but food inflation is likely to pull headline inflation higher. “Nevertheless, we still foresee inflation contained over the forecast horizon, supported by softer oil prices.

“However, the fading of base effects and rising utility costs should push headline inflation closer to the current target of 4.5% over the next year. The trajectory of inflation beyond the near term has been affected by the South African Reserve Bank’s (Sarb’s) more aggressive push towards a lower target.

“We think this shift will happen as soon as possible, with the Sarb trying to take advantage of currently benign headline inflation. The May MPC meeting statement included a scenario where inflation is contained at 3%, with no implications for the cutting cycle.”

They still anticipate inflationary pressure that will make it difficult to sustain the current rate of inflation and believe that the Sarb will have to work towards a 3% target as a medium-term objective.

“While we still anticipate another cut to 7%, nominal interest rates will be more restrictive as the neutral interest rate sheds at least 1.5-percentage points alongside the inflation target.”

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Food prices and rent expected to push inflation up to 3%

Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, also expect inflation to increase to 3%. “Food prices will continue to edge higher off a low base. Owners’ equivalent rent and actual rentals for housing, surveyed in June, will also contribute to the upside in June’s inflation figures.”