Our weekly podcast by Kevin Lings:

Modest SA inflation should encourage confidence and investment

In this podcast, STANLIB’s Chief Economist, Kevin Lings, examines the factors that lifted SA’s headline inflation rate slightly to 3.6% y/y in December, though it remains subdued. The SARB is expected to stay cautious, but there is room for an interest rate cut. Low inflation encourages confidence and investment. At the same time, SA’s retail spending is growing faster than the overall economy, partly due to controlled inflation.

The focus areas during the week included:

‍US equity markets experienced a week of volatile trade, with the S&P 500 losing 2.1% of its value on Tuesday before rebounding by 1.2% on Wednesday to end the week down 0.4%. The rally on Wednesday was in response to President Trump decision to back off from some of his more extreme “threats” against Greenland and Europe. The Nasdaq fared slightly better, ending up 0.3%.(Most US markets were closed on Monday in observance of Martin Luther King Jr.Day.) With the trade threats over Greenland moving into the background, the US equity market’s attention has turned back to the fourth quarter earnings results.

Market volatility is a normal part of the investment game. In 2025 the S&P 500 posted a peak‑to‑trough decline of 19% in April (in response to the Liberation Day tariffs) but then finished the year up16.4%. Over the longer term, the S&P 500 has, on average, experienced three to four 5% declines in a calendar year and one 10% contraction. 15% pullbacks have occurred roughly once every two years, while declines of 20% or more have occurred, on average, once every three years.

SA’s All-Share Index continued to benefit from higher precious metal prices, which pushed the overall market up a further1.8% in the week. Year-to-date the All-Share Index has gained 5.6%, with the Resources 10 index up an incredible 18.6%.

Last week the US dollar lost 1.3% of its value against the euro but is down only 0.2% against the euro year-to-date. In contrast, the rand has outperformed most other emerging market currencies (the rand is the sixth-best performing emerging market currency year-to-date) in the first few weeks of the year. It has gained2.6% year-to-date against both the dollar and the euro. The bullish momentum in precious metal prices is certainly helping. While the rand is overvalued at current levels and vulnerable to any reversal in SA’s terms-of-trade, the country’s improved economic fundamentals cannot be ignored.

Incredibly, the gold price gained a further 7.3% in the week and is up 13.2% year-to-date. Since the end of 2023 gold has risen by 138%. It reflects a combination off actors, including diminished trust in the dollar, ongoing concerns about inflation, central banks diversifying their reserve holdings, and heightened speculative activity.

In December 2025, SA’s headline CPI increased by 0.2% month-on-month, which was in line with market expectations. This pushed the annual rate of inflation up slightly from 3.5% to3.6%. The monthly increase reflected only two key changes. The first was an increase in housing rental inflation. (Actual rentals increased by 0.8% m/m in December 2025, which pushed the annual rate of change up to 3.7%.) The second was an increase in the fuel price. (In the month fuel prices rose by 1.6%,which partly reflects the 29c/l increase in the petrol price.) Consumer food inflation remained relatively contained at 4.4% y/y. Importantly, core inflation rose by only 0.1% in December, which was below market expectations for an increase of 0.2% m/m. This kept the annual rate of change in core inflation relatively subdued at 3.3% - although this is up from a recent low of2.9% in June 2025. Core inflation has been remarkably steady within a range of2.9% to 3.3% in each of the past 10 months, which is helping the Reserve Bank to pull inflation expectations lower, thereby supporting the bank’s new inflation target of 3%. The latest inflation data should encourage the Reserve Bank to consider cutting rates by a further 25 bps.

SA’s retail sales rose by 0.6% m/m in November 2025, from a revised 1% m/m in October. Importantly, over the past year sales have risen by a robust 3.5% y/y (real),which is up from a revised 3% y/y in October. A breakdown of spending by major category highlights that, although a significant portion of the increase in retail activity is being channelled into clothing and footwear, there has been a strong rise in spending on furniture and appliances as well as cosmetics and toiletries, boosted by Black Friday specials. The relative outperformance of SA’s retail sector in the past year reflects a combination of factors, including the benefit of subdued inflation (hence stronger growth in real disposable income), six cuts in interest rates, and significant “two-pot” withdrawals which amount to more than R75 billion (before tax) since inception.

SA’s mining production declined by a significant 5.9% m/m in November, after an impressive gain of 2.7% m/min October. On a yearly basis, mining production fell for the first time since April 2025, declining by 2.7% y/y. This is significantly down from October’s impressive gain of 6.1% y/y. Overall, mining production is still 11.6% below the level of output that prevailed in January 2020, prior to the Covid-19outbreak. In November 2025 mining production was mixed, with six of the 12mineral groups recording annual decreases in output while the remaining six recorded increases. The largest negative contributors were coal (-7.9% y/y),iron ore (-7.6% y/y), PGMs (-2.8% y/y), and gold (-6% y/y). Gold production is now 22.6% below the level of production that prevailed in January 2020.

On Wednesday, President Trump ruled out the use of force to acquire Greenland, suggested a deal was in sight to end the dispute and stepped back from his threats to impose import tariffs (with effect from 1 February 2026) on a range of European countries in retaliation for their stance on Greenland. After a meeting with NATO Secretary-General Mark Rutte, Trump said Western Arctic allies could forge a new deal over Greenland that satisfies his desire for a "Golden Dome" missile‑defence system and access to critical minerals while blocking Russia and China's ambitions in the Arctic.

The US Supreme Court hearing into Trump’s attempt to remove Lisa Cook from her position as a governor on the board of the Federal Reserve (Fed) started last week. Some justices expressed concern about preserving Fed independence. Justice Kavanaugh warned that the President's position would "weaken if not shatter the independence of the Federal Reserve" while Justice Coney Barrett argued that the risk to financial markets of ruling in the President's favour was reason for "caution". After the hearing, the odds in betting markets of Lisa Cook being removed from the Fed board this year dropped to 19%. A ruling against the Trump administration would limit the ability of the President to nominate a new board member to take Lisa Cook's place, and set a precedent that the Fed was insulated against this form of political interference.

US PCE inflation was unchanged at 2.8% y/y in November 2025, in line with market expectations. Modest goods inflation (1.4% y/y)helped to offset services inflation, which has slowed but remains elevated at3.4% y/y. Shelter inflation slowed to 3.3% y/y. Core PCE inflation held steady at 2.8% y/y, rising by 0.2% m/m, which was also in line with market estimates. With PCE inflation still persistently well above the Fed's 2% target, the Fed is expected to keep rates unchanged for the next few months, especially if the unemployment rate remains contained.

US weekly jobless claims increased modestly to 200 000 in the past week, which was below market expectations for an increase to 207 000, up from 199 000 the prior week. The reading brought the four-week moving average down to 201 500, its lowest level in two years. Continuing claims, which measure the total number of people receiving benefits, declined to 1.85 million, lower than the forecast rise to 1.89 million. These data points are consistent with the slow pace of job cuts in the US.

US construction spending fell in September, but rebounded in October, with the latter exceeding the consensus forecast. The gain in October was driven by residential construction, while non-residential spending remained weak. Critically, construction spending on data centres continued to rise, although the year-on-year growth rate has moderated. It has been hurt by an increase in postponed and cancelled projects, as some developments have encountered energy, water, labour, and other supply constraints.

In January 2026, the S&P Global Composite Purchasing Managers’ Index (PMI) for the US increased marginally from 52.7 to 52.8. This was below market expectations for an increase to 53. According to the report, an acceleration in manufacturing growth slightly outpaced growth in the services sector, and businesses’ confidence in the year ahead “remained positive but dipped slightly”. “Ongoing worries over the political environment and higher prices” offset optimism about economic growth prospects and demand conditions.

The US Bureau of Economic Analysis (BEA) revised the Q3 2025 GDP growth rate up modestly from 4.3% q/q to 4.4% q/q. The upward revision was largely driven by higher exports and investment spending. In Q2 2025, the US economy grew by a solid 3.8%.

The University of Michigan released its revised Consumer Confidence data for January 2026. The index was measured at 56.4 for the month, up from 52.9 in December. Overall the level of consumer confidence remains extremely low. The report highlights that January’s reading is over 20% lower year-on-year, “as consumers continue to report pressures on their purchasing power stemming from high prices and the prospect of weakening labor markets”.

In January 2026,the HCOB Eurozone Composite PMI Output Index was unchanged at 51.5. It was buoyed by the services sector, with a reading of 51.9, although this is down from 52.4 in December 2025. A breakdown of the data revealed a welcome increase in new orders, but the manufacturing component of the index remained below the key 50 index level (at 49.4) for the third consecutive month. It has, effectively, been in decline or very subdued since the middle of 2022.

The EU’s trade deal with Mercosur, the South American trading bloc, faces a potentially lengthy delay. In the week the European Parliament voted (with a small majority) in favour of a resolution to seek an opinion from the Court of Justice of the European Union on whether thetexts of the agreement comply with EU treaties.

In Q4 2025, Chinese economic growth was 4.5% y/y, the slowest rate of expansion in three years, amid ongoing weakness in investments and consumption activity. This was in line with market expectations(Bloomberg), but down from growth of 4.8% y/y in Q3 2025. Unsurprisingly, the Chinese government achieved its growth target of 5% in 2025 (and for the third consecutive year) owing to strong growth in the first half of the year, with the production side of the economy doing the heavy lifting - helped by a strong export performance.

China’s industrial production growth rose to 5.2% y/y in December from 4.8% y/y in November and above market expectations (Bloomberg) for production to rise by 5% y/y. Manufacturing production drove the acceleration, growing by 5.7% y/y in December (vs 4.6% in November), boosted by robust export growth. Interestingly, private sector activity (4.2% y/y) accelerated in December, while production by state-owned companies (3.9% y/y) slowed.

Fixed asset investment in China fell for the fourth consecutive month in December. Growth was recorded at -3.8% y/y for 2025,which is down from -2.6% y/y in the first 11 months of the year and below market expectations for investment growth to fall to -3.1% y/y. This is the first ever annual contraction in China’s fixed investment activity. Unsurprisingly, property investment growth fell for the fourth year in a row at -17.2% y/y in2025 –the biggest ever decline in property investment as the housing market continues to slump.

China’s retail sales continued to slow in December, hurt by the diminished effectiveness of government’s consumption trade-in programme and increased negative wealth effects due to the housing market recession. In the month, retail sales grew by only 0.9% y/y, which is down from growth of 1.3% y/y in November, and below market expectations for growth of 1% y/y. A breakdown of retail sales shows that the weak performance was broad-based. In particular, home appliance sales fell for the third consecutive month (-18.7% y/y in December), while building material sales fell for the sixth consecutive month (-11.8% y/y).

Below is a summary of China’s latest economic outlook, based on last week’s consensus economic forecast report:

• Chinese growth is expected to moderate in 2026,dragged down by ongoing weakness in domestic demand conditions and uncertainty around export performance, despite ongoing government support. The economy grew by 5% in 2025, with growth forecast to slow to 4.5% in 2026, moderating further in 2027, before settling back at 4.5% in 2028.
• Chinese industrial production is expected to slow, growing by 4.8% in 2026, below its five-year average, as activity loses some momentum amid ongoing trade tensions, weak domestic consumer demand and subdued building activity.
• Retail sales are expected to remain muted, amid diminished effectiveness of the consumption trade-in programme and negative wealth effects from the housing market slump. Retail sales growth is forecast to average only 4% in 2026.
• There is only a 15% chance of recession over the next 12 months. But this is based on only seven respondents.
• Chinese labour market conditions are expected to remain fragile as the unemployment rate will be 5.1% 2026, with youth unemployment remaining a concern.
• The inflation rate is expected to remain muted at 0.6% in 2026. Chinese benchmark interest rates are forecast to drop in the next two years, amid ongoing easing by the People’s Bank of China.
• China’s yield gap (10-year less two-year) is expected to narrow marginally in the next 12 months, driven by moderating10-year bond yields.

The Bank of Japan(BoJ) left its key interest rate unchanged at 0.75% at its policy meeting on Friday, 23 January. This was in line with market expectations. The bank increased interest rates twice in2025. In the January meeting, the bank reiterated that it would increase interest rates further if the economy and prices evolved in line with its forecasts. In its quarterly outlook, the BoJ revised up its inflation forecast as well as its GDP forecasts for fiscal years 2025 and 2026, noting that an improving economy and a tight labour market would continue to lift wages and prices.

The Norges Bank(central bank of Norway) kept its policy rate (deposit rate) unchanged at 4%. This was in line with market expectations.  Norway last cut interest rates in September2025, by 25 bps. In 2025, the bank cut rates on only two separate occasions, by a total of 50 bps. The Norges Bank repeated its guidance for rate cuts “in the course of the year”.