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IOL News
6 days ago
- Business
- IOL News
How rising inflation affects interest rates in South Africa
Although inflation in South Africa has edged up slightly, economists believe that interest rate cuts are still likely – and necessary – as the overall price environment remains subdued even though prices are expected to continue to rise. June's consumer price index (CPI) rose to 3%, up from May's 2.8%, marking the first time in three months that inflation has returned to within the South African Reserve Bank's (SARB) 3% to 6% target range. Despite this small increase, inflation remains low by historical standards and well below the 5.2% seen a year ago. Old Mutual chief economist Johann Els said that while food prices, particularly red meat, were a touch higher than expected, partly due to the effects of foot-and-mouth disease, most categories remained muted. 'Consumer goods inflation is still very subdued,' he said, with clothing, furniture, and appliances still in negative territory year-on-year and core inflation slipping to 2.9%. This paints a picture of an economy with weak pricing pressure, which Els argued justifies a further 0.25 percentage point cut to interest rates at the Monetary Policy Committee meeting next week. Els said government has a 'window of opportunity' to announce a reduced 3% target for inflation. SARB governor Lesetja Kganyago has been pushing for a lower inflation target, although this will require a National Treasury policy change. 'If we miss this window of opportunity over the next few months, it's going to be more difficult for the Reserve Bank to get inflation down sustainably to 3%' as it will start drifting upwards into next year, he says. Els said that inflation is expected to rise moderately through the rest of the year, approaching 4% by December. 'If we miss this window, it will become more difficult for the Reserve Bank to sustainably bring inflation closer to 3% once it starts drifting upwards again.'
IOL News
6 days ago
- Business
- IOL News
Understanding the impact of rising inflation on South Africa's interest rates
Although inflation in South Africa has edged up slightly, economists believe that interest rate cuts are still likely – and necessary – as the overall price environment remains subdued even though prices are expected to continue to rise. June's consumer price index (CPI) rose to 3%, up from May's 2.8%, marking the first time in three months that inflation has returned to within the South African Reserve Bank's (SARB) 3% to 6% target range. Despite this small increase, inflation remains low by historical standards and well below the 5.2% seen a year ago. Old Mutual chief economist Johann Els said that while food prices, particularly red meat, were a touch higher than expected, partly due to the effects of foot-and-mouth disease, most categories remained muted. 'Consumer goods inflation is still very subdued,' he said, with clothing, furniture, and appliances still in negative territory year-on-year and core inflation slipping to 2.9%. This paints a picture of an economy with weak pricing pressure, which Els argued justifies a further 0.25 percentage point cut to interest rates at the Monetary Policy Committee meeting next week. Els said government has a 'window of opportunity' to announce a reduced 3% target for inflation. SARB governor Lesetja Kganyago has been pushing for a lower inflation target, although this will require a National Treasury policy change. 'If we miss this window of opportunity over the next few months, it's going to be more difficult for the Reserve Bank to get inflation down sustainably to 3%' as it will start drifting upwards into next year, he says. Els said that inflation is expected to rise moderately through the rest of the year, approaching 4% by December. 'If we miss this window, it will become more difficult for the Reserve Bank to sustainably bring inflation closer to 3% once it starts drifting upwards again.'
IOL News
18-07-2025
- Business
- IOL News
Economic growth may improve but SA still exposed to global headwinds and domestic instability
While South Africa's economic outlook may improve over the medium term, US tariffs are still a concern. South Africa's economy could grow as much as 0.8% in the second quarter of 2025 after contracting in the first three months of the year, said Old Mutual chief economist Johann Els. The anticipated rebound comes off a weak base though. If agriculture is excluded, growth in the first three months would have been negative, with sectors such as mining, manufacturing, utilities, and construction all in 'deep negative territory,' Els said during a recent webinar. Over the medium term, Els expects growth to improve modestly from the 1.1% annual average of the past 16 years to between 2.5% and 3%. 'We are making some headway to reducing the structural constraints in the economy,' he said, pointing to progress in electricity, logistics, and water supply with the distance of the private sector through Operation Vulindlela. However, structural issues means growth of 5% to 6% remains 'highly unlikely,' Els added. Private sector participation is key to unlocking growth, Els said, with a slightly more stable policy outlook helping to build business confidence following the formation of the Government of National Unity (GNU) in 2024. '[Investor] concern has eased quite a bit,' he noted, though investor uncertainty returned amid budget and political questions earlier in the year. While some of the uncertainty that characterised the first quarter, such as delays in the budget process, tariff volatility, and GNU stability, has eased slightly, Anchor Capital's chief investment officers, Nolan Wapenaar and Peter Armitage, noted that 'South Africa's economic outlook has weakened, reflecting a combination of deepening political uncertainty and mounting global pressures'. The South African Reserve Bank (SARB) has downgraded its 2025 gross domestic product (GDP) growth forecast from 1.7% to 1.2%, while the International Monetary Fund projects just 1% growth for the year. According to Anchor, 'investor confidence has been eroded by persistent policy uncertainty and delays in critical structural reforms.'
IOL News
18-07-2025
- Business
- IOL News
Economic growth may improve but SA still exposed to global headwinds and domestic instability
While South Africa's economic outlook may improve over the medium term, US tariffs are still a concern. South Africa's economy could grow as much as 0.8% in the second quarter of 2025 after contracting in the first three months of the year, said Old Mutual chief economist Johann Els. The anticipated rebound comes off a weak base though. If agriculture is excluded, growth in the first three months would have been negative, with sectors such as mining, manufacturing, utilities, and construction all in 'deep negative territory,' Els said during a recent webinar. Over the medium term, Els expects growth to improve modestly from the 1.1% annual average of the past 16 years to between 2.5% and 3%. 'We are making some headway to reducing the structural constraints in the economy,' he said, pointing to progress in electricity, logistics, and water supply with the distance of the private sector through Operation Vulindlela. However, structural issues means growth of 5% to 6% remains 'highly unlikely,' Els added. Private sector participation is key to unlocking growth, Els said, with a slightly more stable policy outlook helping to build business confidence following the formation of the Government of National Unity (GNU) in 2024. '[Investor] concern has eased quite a bit,' he noted, though investor uncertainty returned amid budget and political questions earlier in the year. While some of the uncertainty that characterised the first quarter, such as delays in the budget process, tariff volatility, and GNU stability, has eased slightly, Anchor Capital's chief investment officers, Nolan Wapenaar and Peter Armitage, noted that 'South Africa's economic outlook has weakened, reflecting a combination of deepening political uncertainty and mounting global pressures'. The South African Reserve Bank (SARB) has downgraded its 2025 gross domestic product (GDP) growth forecast from 1.7% to 1.2%, while the International Monetary Fund projects just 1% growth for the year. According to Anchor, 'investor confidence has been eroded by persistent policy uncertainty and delays in critical structural reforms.'
IOL News
27-05-2025
- Business
- IOL News
SA inflation at 2. 8%: Why it feels higher and how to calculate your personal inflation rate
Although the official inflation rate is 2.8%, many South Africans feel prices are rising faster than that. To help people understand their personal cost increases, Statistics South Africa offers a DIY guide on its website for calculating individual inflation based on personal spending Image: Ayanda Ndamane/ Independent Newspapers. With the official inflation rate at 2.8%, consumers may be asking themselves how this is possible because their experience at the till point belies the number recently put out by Statistics South Africa. The official statistics agency has, however, made it easy for people to calculate their own inflation basket. On its website, it provides a do-it-yourself guide to working out how much items are going up each month for the ordinary South African. Last Wednesday, Statistics South Africa issued the latest Consumer Price Index (CPI) print, which went up from 2.7% in March to 2.8% in April. This increase in the cost of living was a bit higher than Old Mutual chief economist Johann Els had expected (2.6% to 2.5%), although it was lower than what Investec chief economist Annabel Bishop had anticipated (closer to 3%). The data indicated that the higher rate was driven by housing and utilities, food and non-alcoholic beverages, alcoholic beverages and tobacco, as well as restaurants and accommodation services. So, how do you calculate your own household CPI? Focusing on the example of education, Statistics South Africa said that the first step was to look through the 391 products in its Excel dataset to identify those associated with education. Statistics South Africa does not include all items on which consumers spend money in every monthly basket. In the spreadsheet, it said, there are 20 items relevant to education, which are across different categories in its CPI basket, which was last updated in January. For example, it noted, school uniform items are classified under clothing and footwear, while textbooks and books are listed under recreation, sport and culture. Consumers may also want to add aspects such as sporting equipment. Building a separate spreadsheet for all these items is advised. The second step Statistics South Africa details is identifying the weights associated with the product, which are also in the spreadsheet. This determines each item's contribution to increases in total household spending. For example, school jerseys account for 0.07%. Adding together the 20 items Statistics South Africa identified for its example, the weight of education in terms of this category's contribution to increases in cost of living, it gets to 3.61%. The agency then demonstrated the calculations (third step) that are required to work out each product's contribution to its custom basket, which requires adjusting weights. This is done by dividing the basket weight for each product as listed in the spreadsheet by the total of 3.61%. For example, the calculation for school jerseys is: 0.07/3.61 = 0.020, which provides the weight of school jerseys in terms of the custom basket for education. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Next Stay Close ✕ Calculate a weight for each product in the custom basket Image: Stats SA Step four involves requires sourcing price indices for two time periods from the spreadsheet that will, eventually, provide the inflation rate for our custom basket. In this example, indices for February 2025 and March 2025 are selected, which will show the month-on-month increase for the basket when all the calculations are complete. Source product-level price indices from published data Image: Stats SA Step five is to calculate two price indices (one for February and one for March) for the custom basket as a whole. 'This is the trickiest part of the exercise but can be easily done in Excel,' said Statistics South Africa. (Or one could use an alternative software provider's tools.) Two calculations are involved. First, determine a weighted index for each product by multiplying the product's price index by its weight. For example: School jerseys: 101.1 x 0.020 = 2.02 This needs to be done for each product in the list, it explains, which will result in 20 weighted indices for February. The second calculation is to add up all these weighted indices to give us an aggregate index for our basket, which is 100.1 for February. The same method returns an overall index of 103.9 for March. Calculate price indices for the custom basket as a whole Image: Stats SA Finally, it noted, the sixth step is to calculate the percentage change in price – which then provides the inflation rate – for the custom basket using these the February and March indices. Subtract the February index from the March index, divide the difference by the February index and multiply by 100: [(103.9 – 100,1) / 100.1] x 100 = 3.8 This will show that the increase in the overall price of education – based on the products in the customised list – increased by 3.8% between February 2025 and March 2025. Calculate percentage change in price for the custom basket Image: Stats SA The same percentage change formula is used to calculate an inflation rate for each of the 20 products. The price of school socks decreased by 0.3 percentage points between February and March. Fees for public secondary education and after-school centres increased by 6.8 percentage points. The information to work out a do-it-yourself basket is available on the Statistics South Africa website. IOL
