Inflation in South Africa to Decline:
According to a recent Reuters poll of 19 economists conducted from December 6-12, inflation in South Africa is set to slow down next year. The combination of global trends impacting price growth and weak domestic consumer spending is expected to be the catalyst for this decline. The median forecasts suggest that inflation, currently estimated to average 5.8% this year, will drop to 5.0% in 2022 and further decrease to 4.5% in 2025. It’s worth noting that the latter figure falls within the South African Reserve Bank’s comfort zone of 3%-6%.
Factors Driving Disinflation:
BNP Paribas’ Chief Economist, Jeffrey Schultz, highlights several factors contributing to the expected disinflation next year. Schultz points out that easing global supply bottlenecks, which have been pushing core goods prices lower across various regions, and domestic input prices experiencing deflation since July, are likely to have a lasting impact on core goods prices. He also cites a lack of demand within the South African economy as evidence of inflationary pressures decreasing.
Predicted Timing for Interest Rate Cut:
Regarding the timing of the first interest rate cut by the South African Reserve Bank (SARB), the poll reveals that the majority of respondents expect the cut to occur later rather than sooner. Only two out of seven respondents suggest an earlier rate cut. It is anticipated that the SARB will wait until May to implement the cut, as policymakers navigate potential risks to inflation and assess when major economies will implement interest rate reductions. Currently, the repo rate stands at 8.25%.
Economic Growth Projections:
The median forecast for South Africa’s economic growth in 2022 remains unchanged from the previous month’s poll, indicating an expected expansion rate of 1.3%. This is an improvement from the estimated 0.7% growth for this year.