Statistics South Africa has released the March inflation figures, which came in line with expectations at 3.1 percent. This is slightly up from the 3 percent recorded in February.
Core inflation was also higher, rising by 0.2 percentage points, from 3 percent in February to 3.2 percent in March. Remember, core inflation refers to CPI excluding the volatile components of food, non-alcoholic beverages, fuel, and energy.
The main contributors to the higher inflation in February were housing and utilities, which increased in their contribution by 0.1 percentage point, as well as entertainment, restaurants, and accommodation services, which increased by 0.2 percentage points over the February read.
Yesterday, the Monetary Policy Review was also released. The salient points highlighted significant uncertainty about the war in Iran, both in its duration and intensity. Therefore, most central banks have decided to hold interest rates at current levels. These levels are seen as slightly or moderately restrictive, affording authorities more room to look beyond the first-round effects of the energy price shocks that have come through.
What this means for inflation is that interest rates are likely to remain higher for longer in South Africa and may even rise, depending on the intensity and duration of the war’s inflationary shock. The Reserve Bank’s inflation model shows several alternative paths, depending on assumptions about the duration and intensity of these inflationary effects.
The Reserve Bank still expects GDP growth to rise to around 2 percent by 2028, but the impact on household consumption expenditure may be skewed downward, given higher inflation this year. This could reduce economic growth in 2026, although no specific growth levels were mentioned.
Overall, the global environment is less supportive, and growth and resilience will depend more on domestic factors. That said, there could be some positive developments towards the end of 2025, including potential sovereign credit rating upgrades and the removal from the FATF grey list.
Another issue mentioned was the decrease in the inflation target. This move will not detract from the commitment to achieving inflation at 3 percent, even though inflation is expected to rise to around 4 percent this year before returning towards the 3 percent target in 2027.
The bottom line is that we can expect no further interest rate cuts this year. Any potential cuts may only materialise in the fourth quarter, and even then, only if the war ends relatively soon. Otherwise, rate relief may be carried over for a longer period.