Absa’s inflation outlook for SSA economies

Inflation pressures have been mounting across Sub-Saharan Africa, with countries like Namibia experiencing a three-year high in April. The surge in food and fuel costs has been a key driver of rising prices, putting pressure on consumers and businesses alike. South Africa, with inflation hovering at 5.9 percent, is nearing the upper limit of the South African Reserve Bank's target band of 3.3 to 6 percent. To delve deeper into the inflation trajectory on the continent and its implications for interest rates, CNBC Africa sat down with Ridle Markus, Africa Strategist at Absa CIB. Reflecting on the inflation dynamics, Markus highlighted the common catalysts of high inflation across the continent, namely fuel and food prices. He pointed out that inflation expectations are on the rise, with second-round effects of fuel price hikes impacting various components of the Consumer Price Index (CPI) basket. While the current outlook suggests a few more months of elevated inflation, Markus anticipates a shift in the latter half of the year. He noted that Namibia has already witnessed a decline in inflation due to decreasing fuel prices, with other markets likely to follow suit in the coming months. Markus drew parallels with the recent moderation in inflation seen in the United States, where the Consumer Price Index (CPI) and Producer Price Index (PPI) showed signs of cooling off. While some countries in Sub-Saharan Africa have begun to address pricing pressures, mainly driven by supply-side factors, central banks have taken varying stances. Markus underscored that central banks have hesitated to combat supply-driven inflation through rate hikes, citing the belief that such measures might have limited impact and that the inflation surge could be transitory. However, several central banks have already started tightening their monetary policies in response to high inflation. Countries like Mozambique, Ghana, and Botswana have implemented significant rate hikes to counter inflationary pressures. Ghana, in particular, with inflation soaring at 23.5 percent, is expected to introduce another round of rate increases. While some markets like Nigeria have yet to adjust their policy rates, Markus predicts that more countries will start increasing rates in the coming months to anchor expectations and ensure inflation remains within target bounds. The looming question for investors and policymakers remains the peak of inflation in Sub-Saharan Africa and the subsequent trajectory. While the near-term outlook suggests continued inflationary pressures, Markus anticipates a shift towards lower inflation levels by the end of the year. The response of central banks in the region will be crucial in managing the current price surges and anchoring inflation expectations to maintain economic stability.