South Africa’s producer inflation eases to 13.5% y/y in December

South Africa's producer inflation rose at a slower pace in December, with Statistics South Africa recording an annual PPI of 13.5%. This figure was more or less in line with market expectations and down from the 15% reported in November. While there was no change in produce prices for the month, the overall inflation picture is looking positive. Annabel Bishop, Chief Economist at Investec, explained that the pressures seen in the first half of last year are easing significantly, leading to a slowdown in inflation. Looking ahead, she predicts even quicker improvements in inflation rates up until July. Despite concerns about load shedding and high input costs, Bishop remains optimistic about the inflation trend, emphasizing that the recent 18.7% increase in electricity prices will have an impact but has been factored into forecasts. She highlights the importance of base effects in calculating inflation, noting that comparison against previous high base levels will result in downward pressure on inflation in the first half of this year. Factors such as global commodity prices and China's reopening also play a significant role in shaping the inflation outlook. While Bishop expects a 50 basis point hike from the Reserve Bank, she believes it may be the last one for the current cycle, with a potential cut in interest rates in the second half of the year if inflation continues to fall. Despite the positive outlook, uncertainty remains about the timing of potential rate cuts, with the Reserve Bank likely to closely monitor inflation levels before making any decisions.