South African inflation seen averaging 5% in 2024 – central bank governor

By Divya Chowdhury and Kopano Gumbi

DAVOS, Switzerland (Reuters) – South African central bank governor, Lesetja Kganyago, said on Wednesday that the disinflation process had begun and that he expected inflation to average 5% this year.

Speaking to the Reuters Global Markets Forum in Davos, Kganyago said inflation was still a concern as both global and domestic risks weighed on the outlook.

The South African Reserve Bank (SARB) targets inflation between 3% and 6%.

Despite still-rising food costs, annual inflation slowed for the first time in four months in November in South Africa – to 5.5% – thanks to cooling fuel prices.

However, Kganyago declined to indicate when the central bank would start cutting rates, saying that decisions would continue to be data-dependent.

“We would like to see that inflation has declined sustainably to the 4.5% mark, then the central bank can look whether it is still necessary to keep policy tight,” Kganyago said.

The SARB will hold its first monetary policy committee meeting next week, wherein they will revise the forecasts for the year.

South Africa has suffered almost daily power cuts, some for up to 10 hours a day, for more than a decade.

The SARB estimated that these power cuts had shaved off up to 2 percentage points from growth in 2023, but now think that investments from renewable energy should ease the pressure.

Logistics constraints on the ports and rail network run by troubled state-owned operator Transnet will also impact growth this year.

Kganyago said that, although it was difficult to quantify, it was clear that the inability of the rail network to move goods efficiently was feeding into inflation.

In addition, South Africa will hold its seventh democratic national election this year and pressure to increase spending could impact domestic inflation.

“There will be a lot of contestation in South Africa and that could spill into the labour market and that has implications for wage setting and domestic inflation,” Kganyago said.

(Reporting by Divya Chowdhury in Davos, Writing by Bhargav Acharya and Kopano Gumbi; Editing by Andrew Heavens and Alex Richardson)