By Koketso Mano
Headline inflation was 3.2% y/y in February, unchanged from January's figure. The print was slightly below ours and the market expectation of 3.3% and 3.4%, respectively. Monthly pressure was 0.9%, led by contributions from core inflation.
Core inflation was 1.1% m/m, and 3.4% y/y - down from 3.5% previously, which highlights the benefits from prevailing base effects. Services inflation recorded monthly inflation of 1.4%, reflecting the continued normalisation in categories such as medical insurance. On an annual basis, services inflation was 3.8%, down from 4.0%. Core goods inflation was 2.4% y/y, up from 2.3% previously.
Average fuel prices lifted by 3.9% m/m but were 3.6% lower than in February 2024
Food and non-alcoholic beverages (NAB) inflation was 2.8% y/y, rising from 2.3% in January. Monthly inflation of 0.4% was driven by cereals, fruit and nuts, miscellaneous foods and NAB.
Outlook
We should continue to see positive base effects keeping a lid on inflation in February. Therefore, while several infrequent survey outcomes will be featured in the March figures, these should mainly affect monthly inflation relative to a year ago. In line with this, we see the possibility of headline inflation posting 2.9% in March. As the year progresses, the fading of base effects, spending growth, and a VAT increase should support faster inflation. That said, we anticipate that average inflation will be closer to 4.0% this year, slower than 4.4% in 2024.
Risks to the outlook include a more turbulent global environment that drives supply chain disruptions and weighs on emerging market currencies, a faster acceleration in local administered price inflation, and a faster rebuilding of margin by suppliers.
Fortunately, inflation expectations remain anchored, with the latest BER survey result for 1Q25 showing inflation averaging 4.6% across various time horizons. This should allow monetary policy the space to continue to loosen its noose on the economy, shifting more towards a neutral stance by year-end - we see that neutral level at 7.0%. We do not think that the next cut will be at the March meeting, as global volatility unfolds, but another cut is probable before the end of 1H25.
The March inflation print is scheduled for release on 23 April. Major periodical surveys conducted in March include housing and related services (17.54% weight in CPI), public transport (2.72%), as well as education and boarding fees (2.47%).
