South Africa Inflation Slows to 5.4% Amidst Zero Growth Forecast

South Africa Inflation Slows to 5.4% Amidst Zero Growth Forecast

South Africa’s annual inflation rate fell to 5.4% in June from 6.3% in May, data from the statistics office showed Wednesday. By consensus, analysts expected the rate to ease to 5.6% for the month. Inflation averaged 7.0% in 2022. Fitch expects it to remain above the South African Reserve Bank’s 4.5% (+-1.5%) target in 2023, at 6.4% on average.

On a monthly basis, consumer price growth was unchanged at 0.2%, below the forecast of a 0.4% jump.

Meanwhile, annual core inflation in South Africa was 5%, down from the earlier 5.2% and the market forecast of 5.1%. Month over month, core consumer price growth came in at 0.4%, above the previous 0.1%, but lower than the 0.5% market estimate.

In an update, Fitch Ratings has affirmed South Africa’s long-term foreign-currency issuer default rating (IDR) at ‘BB-‘ with a stable outlook.

It said South Africa’s ‘BB-‘ IDR is constrained by low real GDP growth hampered by power shortages, a high level of inequality, a high government debt-to-GDP ratio, and a modest path of fiscal consolidation.

The ratings are supported by a favourable debt structure with long maturities and denominated mostly in local currency as well as a credible monetary policy framework.

“We forecast zero real GDP growth in 2023, against 1.9% growth in 2022, due to severe power shortages in recent months that are likely to weigh heavily on GDP2, Fitch Rating said.

The rating agency said this should be followed by a modest recovery to 0.9% growth in 2024 and 1.3% in 2025. Analysts said strong investment in power generation after the deregulation of the sector should moderately improve energy supply from 2024 and support the recovery.

However, real GDP growth will remain constrained by a poorly functioning transportation sector that drags on exports.  Inflation averaged 7.0% in 2022. Fitch expects it to remain above the South African Reserve Bank’s 4.5% (+-1.5%) target in 2023, at 6.4% on average.

“This is due to the continued depreciation of the rand of about 15% against the US dollar and the cost of load-shedding for businesses, which is likely to be passed on to consumers.

“We forecast inflation to decline to 5.5% in 2024 and 4.5% in 2025, respectively, enabling the reserve bank to start easing monetary policy”, the rating note stated. #South Africa Inflation Slows to 5.4% Amidst Zero Growth Forecast Nigerian Treasury Bills Yield Rises to 7%