Global markets are currently navigating a complex mix of geopolitical risks, trade tensions, and domestic economic pressures while, locally, CPI in January came in at 3.2% as expected.
International Market Developments
One of Trump’s first tariff actions after becoming President was to announce 25% tariffs on Canada and Mexico and 10% on China. The Chinese ones had been implemented, whilst there was some hope that the Canadian and Mexican ones, which had been deferred for a month, would be dropped or scaled back following concessions by both countries on border security and measures to stem the trafficking of fentanyl. US Commerce Secretary Howard Lutnick, put into doubt whether the imposition of US tariffs on Canada and Mexico would ultimately be as large as 25%, noting progress on measures to stem the inflow of illegal immigrants into the US. However, he also stated that current progress on stopping fentanyl trade was insufficient and reaffirmed the US intention for a further 10% tariff on China to apply.
In geopolitics, the President of Ukraine, Volodymyr Zelensky said he’s willing to meet Donald Trump again if invited back to the US, adding Kyiv is ready to accept the minerals deal that was put on hold last week. This followed the contentious meeting at the White House on Friday between Zelensky, US President Donald Trump and US Vice President JD Vance.
The minutes of the last FOMC meeting illustrated the impact of inflation concerns on Fed policy makers, even early in the Trump administration. Now, with the heightened volatility in the US dollar, a mix of geopolitical risks and continued trade tensions, the global markets remain highly uncertain in the near term.
Local Market Developments
Local CPI inflation lifted in January, to 3.2% y/y (0.3% m/m), from 3.0% y/y in December and 2.9% y/y in November, matching the market consensus.
Stats SA reconstituted the make-up of the inflation index, an event which happens every few years in all countries to better reflect shifts and trends in consumer spending. Product weights are also adjusted. The reweighting and updating of the CPI basket and several other normal updates has not caused the headline outcome to deviate from expectations. The largest single component of CPI is food which is influenced by both domestic and international agricultural prices.
At the last MPC meeting on January 30th, the Committee highlighted that the global outlook was particularly uncertain, and inflation risks are to the upside. A pause in interest rates is now expected. South African markets are also dealing with internal challenges, including trade imbalances and potential tax hikes, leaving the outlook for the local macro variables uncertain.