Inflation in South Africa will slow next year as global trends weighing on price growth combine with weak domestic consumer spending, a new poll has found.

From an estimated average of 5.8% this year, inflation is expected to decline to 5% next year and 4.5% in 2025, according to the median forecasts of 19 economists polled by Reuters from 6-12 December. The latter would be right in the middle of the South African Reserve Bank’s comfort zone of 3-6%.

Jeffrey Schultz, chief economist at BNP Paribas, wrote in a note that prospects for disinflation next year are even more compelling than before.

“On the supply side, we point out that easing global supply bottlenecks helping to push core goods prices lower in most regions, coupled with domestic input prices which entered deflationary territory back in July already, are likely to impact still sticky core goods prices into next year,” he wrote.

Schultz said that the South African economy was showing more signs of weak demand, which pushed inflation lower.

Still, similar to last month’s poll, the bigger risk on the timing of the first Reserve Bank interest rate cut is later rather than sooner, according to all but two of seven respondents to an extra question.

Rate cut

The Bank is expected to wait until May before cutting its repo rate as policymakers try to navigate risks to inflation and the timing of interest rate reductions in major economies. The US Federal Reserve will wait until at least July, according to a slim majority of respondents in a separate Reuters survey.

After May, the Reserve Bank is forecast to cut in every quarter by 25 basis points in the forecast horizon until early 2025, eventually reaching 7% later that year. The repo rate is currently 8.25%.

Read: Consumer confidence slides to two-decade low

The South African economy is expected to expand 1.3% next year, according to the median forecast, the same as last month’s poll and up from a 0.7% estimate for this year. Power shortages and logistical bottlenecks at ports are weighing heavily on economic output. — Vuyani Ndaba, (c) 2023 Reuters