By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Producer inflation remained subdued at 0.5% y/y in March, down from 1.0% in February. On a month-to-month basis, prices rose by 0.6%, slightly above the average increase recorded over the past six months. The muted annual rate primarily reflects ongoing deflation in transport equipment, particularly parts and accessories, and motor vehicles. Petroleum-related products, notably petrol and diesel, have also registered sustained price declines.
While headline producer inflation, which captures changes in prices of goods sold to retailers (and ultimately consumers), remains aligned with consumer inflation - currently below the lower bound of the South African Reserve Bank's target range (see overleaf), intermediate producer inflation paints a slightly different picture. Intermediate producer inflation, which measures changes in prices of goods used as inputs in the production process, has been steadily rising, currently standing at 7.4% y/y from -2.9% in September 2023. This divergence suggests that most producers are likely absorbing rising input costs instead of passing them on to the final consumer. This is consistent with subdued domestic demand and intensified competitive pressures, which may be constraining firms' ability to raise prices.
In the current global environment, characterised by tariffs and heightened trade policy uncertainty, emerging market currencies, including the rand, will likely remain under pressure. This has important implications for inflation dynamics and monetary policy. Although South Africa is not directly involved in reciprocal tariff measures or tit-for-tat trade disputes with major partners such as the United States, the broader inflationary impact of global trade tensions may still be transmitted through the exchange rate and import price channels.
Rand depreciation raises the cost of imported goods, particularly intermediate inputs critical to domestic manufacturing. As import unit value indices increase, domestic producers reliant on foreign inputs face rising production costs. Whether these cost pressures lead to higher final output prices depends on several factors, including firms' pricing power, the elasticity of consumer demand, and the level of competition within specific industries. For instance, in highly competitive sectors such as automotive manufacturing, where affordable Asian vehicles are making significant inroads, businesses may struggle to fully pass on higher costs, leading to a continued disconnect between intermediate and final producer inflation in the near to medium term.
Some of these inflationary pressures may be offset by excess domestic supply, particularly if trade-related export constraints limit access to international markets. In such cases, oversupply of domestically manufactured goods could help contain price increases, albeit at the expense of export growth.
Overall, while producer and retail price pressures remain muted for now, the inflation outlook is not without risks. The rand's trajectory, global trade policy developments, and movements in import and input prices will be key in shaping medium-term inflation dynamics. For both businesses and consumers, closely monitoring these linkages will be essential to navigating the evolving economic landscape.
Week in review
Headline inflation was 2.7% y/y in March, down from 3.2% in February. Monthly pressure was 0.4%, led by contributions from core inflation. Core inflation was 0.5% m/m, and 3.1% y/y - down from 3.4% previously, continuing to highlight the benefits of prevailing base effects. Average fuel prices declined by 0.4% m/m and 8.8% y/y. Food and non-alcoholic beverages (NAB) inflation was 2.7% y/y, slowing from 2.8% previously, with barely any monthly inflation. Inflation should remain steady in April before resuming a rising trend in May - we see the April headline number at 2.7%. Some monthly pressure could show up in food inflation, while fuel price declines continue to contain overall inflationary pressure. The favourable base effects that have kept headline inflation around the bottom of the inflation target range should start to fade at around the turn of the year. However, the weak starting point and softer oil prices should support inflation below the midpoint of the inflation target range in 2H25, averaging below 4% this year.
Week ahead
On Wednesday, data on Private Sector Credit Extension (PSCE) for March will be released. In February, PSCE continued to show signs of fragility, despite lower borrowing costs, slowing to 3.7% down from 4.6% in January. Household credit remained particularly weak, lagging corporate credit. Total loans and advances extended to firms slowed marginally to 5.1%, down from 5.3% in January. This was supported by a continued, steady rise in commercial mortgages, which rose from 5.3% to 5.5%, as well as general loans and advances, which accelerated from 4.2% to 4.8%. However, these gains were offset by a significant slowdown in overdrafts (from 11.5% to 4.9%) and instalment sales (largely commercial vehicle finance, from 5.2% to 4.7%). Supply of credit to households remained constrained, slowing to 2.7% from 2.9%.
Also on Wednesday, the external trade balance data for March will be released. In February, the trade balance recorded a surplus of R20.9 billion, reflecting a strong rebound from a deficit of R16.8 billion in January. This was driven by exports, which increased by 10.4% m/m to R164.0 billion, while imports declined by 13.5% to R143.1 billion. Year-to-date (January to February), the trade balance recorded a R4.1 billion surplus, reflecting a deterioration from the R14.2 billion surplus recorded over the corresponding period last year.
On Friday, the manufacturing PMI for April will be published. The manufacturing PMI improved slightly in March, rising from 44.7 index points to 48.7, albeit remaining below the neutral mark for the fifth consecutive month and suggesting a continuation of subdued activity in the manufacturing sector. Both business activity and sales orders lifted to just over 48 points as export sales improved despite weakening global trade cooperation and local logistical constraints. Furthermore, purchasing prices eased, with a stronger rand sheltering import prices. Concerningly, manufacturers are becoming progressively less optimistic about the near-term outlook. Trade tensions and rising local political uncertainty, and the impact this will have on confidence in the reform agenda as well as the rand, will likely worsen outcomes in coming prints. That said, recent destocking by manufacturers could support some production growth if demand holds up better than currently feared.
Also on Friday, new vehicle sales data for April will be released. In March, total new vehicle sales grew by 12.5% y/y to 49 493 units, reflecting an acceleration from the 7.2% growth recorded in February. This was driven by new passenger car sales, which rose by 25.3% y/y to 33 447 units, following a 16.6% increase in February. Demand for passenger vehicles has been supported by interest rate cuts and improving consumer finances. Although April's sales may have been affected by the number of holidays, momentum is likely to have been sustained, further supported by pre-purchases ahead of customers anticipating a VAT increase from 1 May 2025. Importantly, the now confirmed cancellation of the VAT rate increase provides significant relief to customers and should support purchases going forward.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 23 Apr | SA | CPI % m/m | Mar | 0.4 | 0.9 |
| SA | CPI % y/y | Mar | 2.7 | 3.2 | |
| 24 Apr | SA | PPI % m/m | Mar | 0.6 | 0.4 |
| SA | PPI % y/y | Mar | 0.5 | 1.0 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 30 Apr | SA | Private Sector Credit Extension % y/y | Mar | -- | 3.7 |
| SA | Trade Balance Rbn | Mar | -- | 20.9 | |
| 2 May | SA | Manufacturing PMI | Apr | -- | 48.7 |
| SA | New vehicle sales % y/y | Apr | -- | 12.5 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 90,552.77 | 1.19% | 1.76% | 21.52% |
| USD/ZAR | 18.797 | -0.05% | 2.98% | -2.24% |
| EUR/ZAR | 21.4162 | 0.20% | 8.61% | 4.14% |
| GBP/ZAR | 25.0765 | 0.55% | 6.31% | 4.66% |
| Platinum US$/oz. | 975.4 | 0.25% | -0.02% | 7.69% |
| Gold US$/oz. | 3,349.43 | 0.68% | 11.24% | 44.61% |
| Brent US$/oz. | 66.55 | -2.07% | -8.84% | -24.39% |
| SA 10 year bond yield | 9.782 | -2.80% | -0.92% | -15.98% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 0.6 | 1.6 | 1.7 | 2.0 |
| Household consumption expenditure % y/y | 2.5 | 0.7 | 1.0 | 2.0 | 2.0 | 2.1 |
| Gross fixed capital formation % y/y | 4.8 | 3.9 | -3.7 | 1.4 | 2.7 | 3.8 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.4 | 3.8 | 4.4 | 4.3 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.0 | 4.6 | 4.2 | 4.3 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USD/ZAR (average) | 16.40 | 18.5 | 18.3 | 18.4 | 18.6 | 18.9 |
