Various risks for higher inflation are starting to dampen economists’ predictions that the repo rate will be cut later in the year.
Although economists predict that the Reserve Bank will start cutting the repo rate in the second half of the year, El Niño, the weak Rand and high oil prices can still cause inflation to increase and make the bank more careful about cutting rates to keep inflation in check. The uncertainty around next month’s election outcome also plays a role in this.
The prevailing El Niño weather pattern looks set to result in possible white maize shortages in Southern Africa, which will cause a reversal in maize meal prices and drive food price inflation higher towards the end of 2024, he points out.“The intensification of El Niño puts Southern Africa’s entire supply chain of maize, the region’s main staple, along with sorghum and wheat, under pressure.
In addition, South Africa experienced consecutive month-on-month fuel price increases since February 2024, with domestic fuel prices not far off from post-invasion record highs. The South African Rand has also been on the back foot in recent months and although the stronger US dollar has been a key driver, election uncertainty is another important factor, Van der Linde says.
He warns that there are continuing signs of rising oil demand, which have led to Brent crude oil reaching multi-month highs and recently breaching the $90 per barrel level. “However, we forecast oil prices to decline gradually in the second half of 2024 as additional supply reaches the market, with Brent seen closing this year at $79 per barrel.”
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