South Africa’s inflation outlook presents potential upward risks, according to Central Bank Governor Lesetja Kganyago. Despite the adverse effects of El Nino weather conditions across Africa, recent data does not indicate significant inflationary pressures from food. Wednesday’s data revealed a decrease in headline inflation to 5.3% year-on-year, slightly below analysts’ expectations and down from 5.6% in February.
In its March decision, the South African Reserve Bank (SARB) anticipated headline inflation to reach 4.5% – the midpoint of its target range – by the end of 2025, later than previously estimated.
Kganyago, speaking at the sidelines of the International Monetary Fund and World Bank spring meetings in Washington, highlighted potential inflation risks. These risks include elevated oil prices due to Middle East tensions and the possibility of tighter global financial conditions, influenced by the likelihood of prolonged higher interest rates by the U.S. Federal Reserve.
Such conditions could result in capital outflows from emerging markets like South Africa, leading to currency adjustments. Despite concerns about food price pressures from adverse weather conditions, Kganyago noted that South Africa had not yet experienced significant impacts from El Nino.
South Africa is confronting economic challenges and high debt levels ahead of its upcoming general election on May 29. The potential outcome of the election, which may see a shift in parliamentary majority, contributes to global uncertainty. Kganyago acknowledged that election-related uncertainty affects various markets, including foreign exchange, bonds, and equities, reflecting a widespread global phenomenon with numerous countries holding elections.