Yesterday, South Africa’s consumer inflation data for December was released. While the headline CPI figure did tick up, it did so below market expectations. The latest figure came in at 3.0% y/y in December, up from 2.9% y/y in November and below Bloomberg’s consensus forecast of 3.2% y/y. Meanwhile, core CPI eased to 3.6% y/y, below the previous month’s print of 3.7% y/y and undershooting expectations of a rise to 3.8% y/y. The softer inflation print comes ahead of next week’s South African Reserve Bank (SARB) MPC meeting. With inflation at the bottom of the central bank’s CPI target band (target band: 3.0% to 6.0%, midpoint: 4.5%), the SARB is undoubtedly justified to deliver another 25bp. However, with many unknowns, it appears more likely that the Reserve Bank will wait until March, possibly May, to deliver further monetary easing. Global uncertainties related to President Trump’s implementation and effects of policy changes, could generate volatility among financial markets. Domestic uncertainties, such as the State of the Nation Address (SONA), the Budget Speech, and an update on electricity tariff increases, support a more measured approach come January 30th.

Domestic retail sales growth exceeded expectations in November. The latest figure rose to 7.7% y/y, from 6.2% y/y in October and against the market’s consensus forecast of 5.8% y/y. This marks the ninth consecutive month of retail growth, largely driven by a strong Black Friday period amid GNU optimism and looser financial conditions. Additionally, household spending power has improved, which is reflected in the data. Lower interest rates, subdued inflation and, of course, increased income from two-pot system withdrawals, all supported stronger retail demand. While the retail sector’s growth reflects improved consumer confidence through the second half of 2024, the sector’s growth potential remains capped by South Africa’s broader low-growth economic environment. Sustained long-term growth requires improved economic performance driven by pragmatic policymaking. Looking ahead, the December retail data is expected to remain strong, bolstered by year-end bonuses and festive season spending behaviour.