FNB: Steady lift in inflation projected for 2025

South Africa's retail sales growth decelerated to 0.9% year-on-year in September, falling short of expectations and indicating a slowdown in consumer spending. Siphamandla Mkhwanazi, Senior Economist at FNB, joined CNBC Africa to discuss the latest retail sales figures and the outlook for inflation in 2025. Mkhwanazi highlighted that the introduction of the two-pot system in September had a significant impact on consumer behavior, with analysts closely monitoring whether consumers were prioritizing spending or debt repayment. While consumer expectations included a slowdown, the extent of the deceleration was more pronounced than anticipated.Various factors drove the deceleration in retail sales, with four out of seven categories recording a decline in volume sales. Hardware retailers and clothing retailers were among the hardest hit, reflecting consumer prioritization of necessities over durable goods and luxury items. However, general dealers and household furniture and content retailers saw an uptick in sales, suggesting that consumers are still spending on essential items.Mkhwanazi emphasized that while the consumer outlook has improved in the second half of the year, challenges remain. High unemployment rates and wage increases that have not kept pace with inflation continue to impact consumer buying power. Despite inflation dipping below the targeted 2.8%, Mkhwanazi noted that the Reserve Bank is expected to continue cutting interest rates to support consumer spending. Looking ahead to 2025, uncertainties loom over global economic policies, with potential shifts in the US economy under a new president adding to the cautious outlook for central banks worldwide, including South Africa's Reserve Bank.Overall, Mkhwanazi remains cautiously optimistic about the consumer environment in the coming years, citing a potential improvement in buying power and policy support from central banks. As South Africa navigates through economic uncertainties, consumer spending trends will continue to play a crucial role in shaping the country's economic recovery in 2025.