South Africa’s Producer Price Index (month-on-month) fell to -0.2% in January, after 0.2% in the prior month. This means producer prices dropped over the month. The figures compare January with the previous month.

Producer Price Trend Signals Easing Costs

January’s producer price reading of -0.2% month-on-month is a clear sign of easing inflation pressure. It suggests input costs for businesses are falling, which can later feed into lower consumer inflation. In our view, this improves the outlook for lower interest rates from the South African Reserve Bank (SARB) over the rest of the year. This result supports the market view that the SARB’s hiking cycle—central to much of our 2025 strategy—is now over. Recent Statistics South Africa data also shows consumer inflation has eased to 5.1%, which sits comfortably inside the SARB’s target band. As a result, markets should assign a higher chance of a rate cut in the second half of 2026, rather than expecting rates to stay on hold for an extended period. For interest rate derivative traders, this points to positioning for lower short-term rates. We see value in receiving fixed on interest rate swaps or buying forward rate agreements (FRAs) that benefit if the SARB cuts later in the year. The market is already moving this way, with the 3-month JIBAR forward curve flattening over the past week. A narrowing interest rate advantage also makes the Rand (ZAR) less appealing for carry trades. This increases the risk of further ZAR weakness versus the US dollar. The latest US non-farm payrolls print was stronger than expected at 215,000, which signals ongoing strength in the US economy. Traders may want to consider USD/ZAR call options or other bullish USD structures to reflect this view. In the bond market, a softer PPI print is positive. Lower inflation boosts the real return on fixed-income assets and can pull government bond yields down. One way to position is to buy South African government bond futures. The 10-year benchmark yield has already fallen 20 basis points this month to 9.80%, as the market anticipated this trend.

Bond Market Implications And Trading Approach

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