Domestic inflation is expected to gradually rise and reach 4.5% year-on-year (y/y) by the end of 2025. 

The upside risks primarily pushing inflation higher include higher oil prices, potential geopolitical tensions as well as higher food, rental and utility prices in the short-term. 

This outlook is according to the latest First National Bank Consumer Price Review that noted headline inflation increased from 3.2% y/y in January (revised downwards from 3.4% previously) to 3.6% in February 2025, well below the 5% in February last year. 

“Domestic inflation remains largely driven by services, with services inflation (4.0%) outpacing goods’ inflation (3.6%). The sticky inflation dynamic is further reflected in core inflation, which edged down by just 0.1% to 3.5% y/y from 3.6% in January 2025. Food and non-alcoholic beverages (16.5% of the basket) remains the main contributor to inflation, adding 1.2ppts to the headline print. However, food prices increased marginally to 5.9% y/y in February – up from 5.8% in February 2024,” the review states.  

Meanwhile, the food sub-category, which makes up 14.8% of the basket, experienced a notable rise in bread and cereals inflation, increasing to 6.1% from -0.4% in February last year. 

“As bread is a staple with inelastic demand, price hikes have a greater impact on consumers, especially low-income households, reinforcing the psychological effect of rising costs,” the review notes. 

Similarly, inflation in the housing, water, electricity, gas and other fuels’ category (28.4% of the basket) recorded an increase of 3.6% y/y in February, compared to the 3.5% observed in the same month last year, contributing an overall 0 points to headline inflation last month. 

The transport category recorded an inflation rate of 1.3% y/y, down from 6.5% in February 2024, driven by the purchase of vehicles (down from 10.5% to 1.7%) and operation of personal transport equipment (down from 6.6% to 1.1%) sub-categories.

Moreover, inflation eased to 0.4% month-on-month (m/m) in February, down from a seasonal peak of 1.1% in January, slightly above the 2024 monthly average of 0.3%. 

FNB pointed out this pattern reinforces the view that inflation risks are still tilted to the upside, particularly in the short-term. 

“While the month-on-month inflation in the housing and utilities’ sector remains subdued largely due to base effects, it continues to be the largest driver of monthly inflation,” FNB added. 

THE FNB CPI Review continued that food inflation increased by 0.9% m/m, pointing to persistent short-term upward pressure. 

Similarly, inflation in the transport sector surged to 1.4% in February, up from 0.4% in January and -0.2% in February 2024, further highlighting short-term inflationary pressures to the upside. 

Going forward, FNB expects upside risks to inflation to persist, especially from food and imported goods’ prices.

This could push up goods’ inflation, which is more sensitive to supply-chain disruptions and raw material fluctuations, particularly amid geopolitical unrest. 

“Therefore, given the risk of heighted geopolitical tensions, upside risk to goods’ inflation remains imminent. Food prices are expected to remain elevated until improved harvest yields in May. Housing and utility costs face upward pressures from anticipated tariff hikes and demand-driven rental inflation. Global oil supply is expected to increase relative to demand, limiting transport inflation risks. Therefore, we expect inflation to rise in the short-term, reaching 3.9 y/y in March 2025, with an average of 3.8% for 2025, slightly lower than the 4.2% average for 2024,” FNB forecasts.