South Africa’s headline CPI inflation rose to 3.2% y/y in January from 3.0% y/y in December 2024, aligning with market expectations. The increase was primarily driven by higher costs in housing and utilities, food and non-alcoholic beverages, and restaurants and accommodation services. Meanwhile, core CPI, which excludes volatile items, declined to 3.5% y/y from 3.6% y/y in the previous month. Note that the inflation release incorporated an updated CPI basket and weights, causing a brief delay in publication. With all indices now rebased to December 2024, inflation remains comfortably within the SARB’s target range, well below the 4.5% mid-point. Despite the slight uptick, the SARB maintains room to ease monetary policy further, although a pause in rate cuts is likely amid global uncertainties before any additional easing later in 2025.
Attention now shifts to the latest PPI data, which will provide further insight into inflationary dynamics. Producer price inflation turned positive in December, rising to 0.7% y/y from -0.1% y/y in November, mainly due to a moderation in deflationary pressures within the coke & petroleum category. Rising fuel costs (-4.7% y/y in December vs. -8.1% y/y in November) contributed to the increase, suggesting further upward momentum in intermediate goods inflation. While PPI is expected to continue its gradual rise, consensus estimates point to a modest 1.0% y/y increase in January, which could signal slower future CPI increases.
ZAR Markets
The ZAR is on the defensive today as the USD appreciates more broadly on the back of rising US Treasury yields. Despite this, the pair continues to trade within a well-worn range. The market’s focus is shifting to key US economic data releases today and tomorrow in the form of the latest update to the US GDP numbers for Q4 and the PCE inflation statistics. These prints – especially the latter – hold the potential to move markets more materially into the weekend. Technically speaking, the USD-ZAR is approaching a juncture where the market will soon need to break decisively in either direction, likely in early to mid-March. Converging long-term support and resistance levels are forcing the pair into a narrowing range, setting the stage for a breakout. With this in mind, note that there has been some speculation around when the Fed will end its Quantitative Tightening policy recently. Recent US data have shown signs of weakness, challenging the Fed’s justification for policy normalisation. With liquidity tightening and government cutting costs, a rise in unemployment and a broader slowdown appear to be unfolding. Mounting evidence thus suggests the Fed may need to ease policy sooner than expected, which would increase pressure on the an overvalued dollar.
Global FX Markets
The U.S. dollar has strengthened marginally this morning driven with tariff uncertainty once again causing the market to adjust positions. The strength has been mild and is certainly not a reason for concern for those who are long term USD bearish. The USD Index is currently marking time around 106.60 into the EU open. The euro has recorded further losses this morning albeit small. The single currency failed to break above the short-term resistance evident at EUR.1.0530 which caused short term speculators to reduce long positions. We expect further consolidation between EUR/USD1.0400 and EUR/USD1.0550 as important US data looms towards the back end of the week. Sterling remains near its 2025 highs and could break higher if the unwinding of Trump-related trades and progress toward a Russia-Ukraine peace deal continue. Despite a slight dip to GBP/USD1.2655, The pound has held above GBP/USD1.26 for four sessions, with previous weakness linked to UK fiscal concerns and rising yields fading. The pound is supported by a dovish BoE stance, tempered rate cut expectations, and positive UK economic data. Additionally, the Trump administration’s efforts to end the Russia-Ukraine war are contributing to the dollar’s decline, further boosting the GBP/USD.