South African inflation is expected to be lower in 2020 than previously forecast and the eventual reading could be lower still, a Reuters poll showed on Thursday, opening the door for the central bank to cut interest rates again during the year.
Inflation will average 4.4% this year – 0.4 percentage points lower than in last month’s survey – and 4.7% next year, medians from the poll of around 30 economists taken in the past week showed.
“We see the risks to the inflation forecasts as decidedly biased to the downside given weak global inflation and subdued local demand. Food inflation is also likely to remain tepid despite forecast below-average rainfall,” said Elna Moolman, economist at Standard Bank in Johannesburg.
“Lower inflation could ultimately create room for the South African Reserve Bank (SARB) to ease policy more than is currently forecast.”
In all, nine of 17 economists who responded to an extra question said risks to inflation forecasts were skewed more to the downside for 2020. The remaining eight were split between more to the upside or even and gave a 45% probability inflation would surprise slower.
Inflation has generally been trending downwards globally and more so recently in South Africa, where prices have been sticky in the past decade.
The Reserve Bank aims to keep inflation in its 3-6% comfort zone. In recent quarters it has trended towards the lower end of that range.
The poll expects GDP growth at 0.8% this year and 1.3% next, suggesting very minimal economic activity for South Africans eager to join the world of work. Unemployment held at a near 17-year high of 29% in the last quarter of 2019.