Inflation cools to 5.1% in December

South Africa’s inflation rate fell for a second straight month, giving the central bank food for thought on the eve of its policy decision that’s expected to remain unchanged at a 2009 high.

Read: SA inflation hits five-month high

The consumer price index rose 5.1% in December from a year earlier, compared with 5.5% the month before, Pretoria-based Statistics South Africa said Wednesday in a statement. That was the lowest level since August 2023. The median estimate of 18 economists in a Bloomberg survey was 5.2%.

The data means inflation has moved closer to the 4.5% midpoint of the central bank’s target band, where it prefers to anchor expectations, but is unlikely to persuade policymakers to cut rates.

Read: Rate cuts likely sooner rather than later

Governor Lesetja Kganyago told Bloomberg TV on January 16 that inflation “is not quite where we would like to see it,” adding that “if we are to make any policy adjustments, we would have to see that inflation has declined to our anchor, which is 4.5%.”

All 19 economists polled in a Bloomberg rate-decision survey forecast policymakers will hold rates, with several expecting them to maintain a cautious tone. At its last rate-setting meeting in November, they unanimously opted to maintain the benchmark interest rate at 8.25% for a third time in a row.

Read: SA inflation breakevens tumble as rates seen on hold

Forward-rate agreements starting in a month’s time show traders are pricing in a 20% chance of a quarter-point increase on the eve of the South African Reserve Bank’s rate decision and only expect a rate cut in May. The rand extended earlier gains rising as much as 0.8% to R18.88 per dollar as of 10:09 a.m. in Johannesburg.

Read:
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The core inflation rate, which excludes food and energy costs, was 4.5%, the same as the month before.

The biggest contributors to inflation cooling in December were food and transports costs, which rose 8.5% and 2.6% respectively.