In February 2025, South Africa’s Producer Price Index (PPI) moderated to a year-on-year increase of 1.0%, down from 1.1% in January, signalling a subtle reversal of its recent upward trajectory. This figure fell short of Bloomberg’s median forecast of 1.3%, suggesting a more restrained inflationary environment at the producer level. On a month-to-month basis, PPI rose by 0.4%, a slight decline from January’s 0.5% increase. This softer-than-anticipated outcome keeps the door open for the South African Reserve Bank to implement another 25-basis-point rate cut sometime this year, potentially concluding its easing cycle by late 2025, following a pause at the March Monetary Policy Committee meeting.
The tempered headline PPI print was largely driven by disinflation in key categories such as food products, beverages, and tobacco, which carry significant weight in the PPI basket. This segment grew by 4.2% year-on-year in February, down from 4.4% in January. Meanwhile, fuel prices remained in deflationary territory, with petrol prices dropping 4.9% year-on-year. Looking ahead, however, statistical base effects may temper this downward pressure, potentially lifting both PPI and CPI in March.
As a bellwether for consumer inflation, the subdued PPI aligns with a gradual uptick in CPI, which remains near the lower end of the SARB’s 3-6% target range. Amid global economic headwinds, including uncertainties stemming from US President Donald Trump’s trade policies, the SARB opted for caution in March, halting its rate-cutting cycle. Nevertheless, with CPI and PPI currently well-contained, market expectations still point to a final 25-basis-point cut before year-end. That said, the SARB’s prudent stance, focused on anchoring inflation expectations, may curb further easing if fuel inflation rebounds or intermediate goods prices sustain their upward momentum.
ZAR Markets
After drifting higher for nearly two weeks since reaching lows on March 18th, the USD-ZAR is moving closer to the ceiling of its downtrend since January. There is still scope for further topside to levels around 18.3500 in the near term, but the broader downtrend remains intact. While the pair’s most recent bounce coincides with a bout of general dollar strength, the ZAR continues to find support in South Africa’s improving terms of trade as gold prices rise to new record highs. The gold price rally will keep the ZAR somewhat resilient against a cautious global backdrop, although the market needs to see material signs of GNU reforms before it will take on a more idiosyncratic, bullish positioning towards the ZAR. In the meantime, the local unit will, by and large, remain a passenger to movements in the dollar, which currently faces plenty of two-way risk despite its broader overvaluation.
Global FX Markets
The U.S. dollar is poised for a consolidative ending to the week, but faces a quarterly loss as the 31st of March looms, driven by concerns over President Donald Trump’s looming tariffs slowing U.S. economic growth. This has lowered U.S. yields, stocks, and the dollar’s value. The euro, hovering just below $1.08, is on track for its largest quarterly gain in over a year, up more than 4% since January 2025, fueled by Ukraine peace prospects, a weaker dollar, and rising German yields. The yen, at 151.19 per dollar, is set for a nearly 4% quarterly rise, largely unaffected by Tokyo’s sticky CPI. Scandinavian currencies lead G10 performers, with Sweden’s krona up nearly 11% and Norway’s krone nearly 9%, as their central banks resist significant rate cuts. Friday’s data releases, including France and Spain’s preliminary inflation figures and the U.S. core PCE inflation gauge for February, could further influence the dollar; a softer-than-expected 0.3% month-on-month rise might sustain downward pressure. Trump’s pledge to unveil sweeping tariffs next week, including 25% levies on imported cars effective April 3, has traders wary, defying earlier expectations of a stronger dollar under his policies