Coffee Table Economics (CTE) with Anchor, by Casey Sprake, is distributed periodically. CTE is a compilation of Casey’s research, analysis, and perspectives on key South African (SA) and global economic data such as inflation, spending trends, and international market dynamics, including socio-political events and the multiple factors shaping the world economy.
Executive summary
In this week’s edition, we highlight the following:
- SARB: Cooling inflation sets the stage for cautious rate cuts amid global uncertainty. The latest inflation data, now settled at the lower end of the SA Reserve Bank’s (SARB) target range and well below the SARB Monetary Policy Committee’s (MPC) preferred target of 4.5%, reinforce expectations of a 25-bp repo rate cut at the MPC’s meeting on Thursday (30 January). While the subdued inflation environment could theoretically support a more aggressive rate cut, the SARB’s MPC has signalled its preference for a more cautious approach. This is primarily due to persistent pressures on the rand and heightened global uncertainties, particularly around the US’ new administration, which, from the SARB’s perspective, calls for a balanced and measured monetary policy stance domestically.
- Expropriation Bill signed into law: A balancing act between pragmatism and brinkmanship. From a political perspective, the passing of the Bill appears to be a strategic move by the ANC to fulfil a longstanding electoral promise. The legislation, under debate and review for five years, seems to represent a significantly diluted version of earlier proposals. While the mass expropriation without compensation initially promised has been excluded, the “just and equitable” standard introduces room for legal interpretation that may shape future outcomes. Nonetheless, the ANC likely saw the bill’s passage as necessary to demonstrate progress on this contentious issue to its constituents.
- SA’s spending snapshot: Unpacking inequality, consumption trends, and financial risks. The 2022/2023 Income and Expenditure Survey (IES) was officially released by Statistics South Africa (Stats SA) this week, offering a comprehensive analysis of how South African households allocate their financial resources. The IES highlights persistent income inequality in SA, with a significant gap between mean and median household expenditure, indicating that most households operate on lower budgets despite a few high earners skewing the average. While racial economic disparities have narrowed, overall household consumption has declined, indicating weakened consumer demand, potential financial distress, and shifting saving patterns.
SARB: Cooling inflation sets the stage for cautious rate cuts amid global uncertainty
Local inflationary pressures remained subdued in December. Headline CPI inflation ticked slightly higher from 2.9% to 3.0%, falling short of the consensus forecast of 3.2%. Core inflation, which excludes the more volatile food and energy components to better reflect underlying price trends, declined for the third consecutive month, easing to 3.6% YoY from 3.7% in November. This highlights weak underlying price pressures on the demand side. The widely debated exchange rate pass-through appears minimal, while the spillover effects from higher logistics and electricity costs had little influence on this inflation reading. Instead, the data strongly reflects the impact of the current contractionary monetary policy stance. The decline in inflation was broad-based, with most subcategories continuing to show downward pressure.
As anticipated, food prices rose slightly in December. Still, the more notable trend was the broad-based cooling across key categories such as housing and utilities, household goods, healthcare, dining out, and recreation, which posted softer inflation prints. Food and non-alcoholic beverages inflation edged up to 2.5% YoY in December from November’s 2.3% print, driven by modest increases in food prices. Looking ahead, upward pressure on food prices is expected in the coming months. Lower harvests are likely to push prices up for bread and cereals, which could eventually translate into higher meat prices via increased feed costs. Domestic white maize prices have notably surpassed the R7,000/tonne mark for the second consecutive month, a trend expected to persist through 1Q25, potentially driving up prices for grain-based food products later this year. Globally, record-high cocoa and coffee prices are set to contribute to inflationary pressures in specific food and beverage categories.
In December, fuel prices fell by 10.2% YoY, moderating from the sharper 18.6% decline recorded previously, as the weaker rand partially offset lower oil prices. Transport disinflation persisted but slowed to -2.0% YoY vs -3.3% YoY in November. The better-than-expected December inflation outcome was further partly due to a dip in services inflation, particularly owners’ equivalent rentals, which decreased from 4.3% to 4.2%, after peaking at 5.0% in February (following significant increases in medical aid tariffs earlier in the year).
With the December data finalising the year’s figures, annual inflation averaged 4.4% YoY for 2024, slightly below the SARB MPC’s forecast of 4.5%. The primary drivers throughout the year were consistent, with the slowing pace of price increases in fuel, food and non-alcoholic beverages, and core categories remaining key contributors.
The bottom line
The latest inflation data, now settled at the lower end of the target range and well below the SARB MPC’s preferred target of 4.5%, reinforces expectations of a 25-bp cut in the repo rate at the 30 January meeting. While the subdued inflation environment could theoretically support a more aggressive rate cut, the SARB MPC has signalled a preference for a cautious approach. This is primarily due to persistent pressures on the rand and heightened global uncertainties, particularly around the US’ new administration, which, from the SARB’s perspective, calls for a balanced and measured monetary policy stance domestically. We anticipate that inflation will gradually rise from its recent lows as base effects diminish, food inflation stabilises, and fuel prices recover from late-2024 declines. The SARB has clearly indicated its intention to lower the repo rate to a “neutral” level, leaving room for an additional 25–50bp of cuts in 1H25. Moreover, the likelihood of a third-rate cut is increasing. However, we emphasise that uncertainty surrounding the outlook remains unusually high, and the trajectory of inflation, alongside evolving risks, will be critical to monitor over the coming months.
Expropriation Bill signed into law: A balancing act between pragmatism and brinkmanship
After much delay, President Cyril Ramaphosa signed the Expropriation Bill into law on 23 January, following an extensive public consultation and parliamentary process. Efforts to replace the outdated Expropriation Act of 1975 began as far back as 2004, with both houses of Parliament passing the Bill in March 2024. The new legislation provides a clear framework outlining the circumstances under which the State and its entities may expropriate land in the public interest. It also sets out detailed processes for compensation and engagement with affected land or property owners. While the State has always possessed the authority to expropriate land for public projects such as roads, railways, and dams, the new Act introduces stricter guidelines to bring order and transparency to the process. Notably, the Act should not be conflated with the “Expropriation Without Compensation” principle that dominated public discourse in 2017/2018. That principle, which would have required an amendment to Section 25 of the Constitution, ultimately failed.
The Expropriation Bill remains fully subject to the provisions of Section 25 of the Constitution, which has not been amended. Compensation under the new Act must be “just and equitable,” balancing public interest with the rights of affected parties, considering all relevant circumstances. While the legislation allows for the possibility of awarding compensation as low as R0 in some instances, any such determination must still meet the fair and equitable criteria. The practical implications of the new Act remain to be seen, as its provisions will need to be applied and interpreted by the courts. Expropriation cases will likely face lengthy legal challenges, potentially delaying implementation.
The bottom line
From a political perspective, the passing of the Bill appears to be a strategic move by the ANC to fulfil a longstanding electoral promise. The legislation, under debate and review for five years, seems to represent a significantly diluted version of earlier proposals. While the mass expropriation without compensation initially promised has been excluded, the “just and equitable” standard introduces room for legal interpretation that may shape future outcomes. Nonetheless, the ANC likely saw the passage of the Bill as a necessary step to demonstrate progress on this contentious issue to its constituents.
SA’s spending snapshot: Unpacking inequality, consumption trends, and financial risks
Stats SA officially released the 2022/2023 IES on 28 January, offering a comprehensive analysis of how SA households allocate their financial resources. The findings reveal that between November 2022 and November 2023, households collectively spent an estimated R3trn. This large-scale expenditure provides valuable insights into the country’s consumer behaviour, financial priorities, and economic trends. According to the survey, the average annual household consumption expenditure (HCE) amounted to approximately R143,691 during the survey period. These data are instrumental in updating the weights of the CPI basket, which influences inflation measurements and economic policymaking. Notably, the latest IES is the first full-scale survey of its kind in a decade, following the 2014/15 Living Conditions Survey (LCS), which provided a more limited assessment of household spending trends.
The survey highlights that SA households allocate a significant portion of their income to a few key areas. In 2023, approximately 75.6% of total household spending was concentrated in four primary categories: Housing and utilities, food and non-alcoholic beverages, transport and insurance and financial services. Simply put, this means that for every R4.00 spent, R3.00 was directed towards these essential expenses, emphasising the critical role these categories play in household budgets. Despite the average household consumption expenditure being R143,691, the median expenditure was considerably lower at R82,861. This significant gap between the mean and median values underscores SA’s deep-seated income inequality, where a relatively small group of high-spending households raises the overall average. In contrast, most households operate on significantly tighter budgets.
The IES also provides a detailed breakdown of income and expenditure across various demographic and socio-economic factors, including the gender of the household head, racial group, type of dwelling (urban formal, urban informal, rural formal, and traditional areas), provincial residence, and income levels. These granular data enable a deeper understanding of shifting poverty and inequality trends compared to past surveys. In real, inflation-adjusted terms, the survey reveals that local households’ annual average consumption expenditure has declined by a cumulative 2% since 2006 and 7% since 2015. However, a particularly noteworthy finding is the divergent expenditure trends among racial groups. While real average annual consumption expenditure for Black African households increased by 9% between 2015 and 2023, White households experienced a substantial 21% decline. Meanwhile, Coloured and Indian/Asian households saw only marginal decreases. Consequently, the disparity in HCE between White and Black African households has narrowed, with the ratio shrinking from 5.2 in 2015 to 3.8 in 2023.
Gender inequality in household consumption has also shown signs of improvement. In 2015, female-headed households had an average annual income of just 63% of male-headed households. By 2023, this figure had risen to 77%. While male-headed households’ average annual consumption expenditure dropped by 13% between 2015 and 2023, female-headed households experienced a 7% increase over the same period. This shift suggests a gradually closing gender gap in financial resilience and spending power.
However, some inconsistencies in the data warrant careful interpretation. One key concern is the discrepancy between reported income and expenditure figures. While real consumption expenditure among SA households declined by 7% since 2015, reported household income only shrank 0.7% in real terms. This divergence could be attributed to credit reliance, savings depletion, and reporting inconsistencies. A particularly striking anomaly is the reported trend for White households. While their real consumption expenditure fell by 21% between 2015 and 2023, their real income reportedly increased by over 4% during the same period. This unexpected contrast raises questions about the accuracy of expenditure reporting or potential shifts in savings and investment behaviours within this demographic group. Given these findings, further in-depth analysis is needed to fully understand the economic landscape of SA households. Future studies and expert reviews will be essential in refining these insights and addressing data inconsistencies to paint a clearer picture of the country’s financial well-being and economic inequality.
The bottom line
The 2022/2023 IES highlights persistent income inequality in SA, with a significant gap between mean and median household expenditure, indicating that most households operate on lower budgets despite a few high earners skewing the average. While racial economic disparities have narrowed, household consumption has declined by 7% since 2015, indicating weakened consumer demand, potential financial distress, and shifting saving patterns. The discrepancy between household income (down only 0.7%) and expenditure suggests reliance on credit, reduced discretionary spending, or reporting inconsistencies. From a financial sector perspective, this trend signals rising credit risk, increased reliance on debt financing, and potential constraints on retail banking growth. Banks may see lower demand for unsecured loans while facing higher default risks, prompting stricter lending policies. The insurance sector could also be impacted as struggling households prioritise essentials over financial protection products. Policymakers must address declining household financial resilience through inclusive economic strategies, targeted social support, and measures to stimulate consumer confidence while ensuring sustainable lending practices in the financial sector.
