Economics for Humans

Inflation dynamics across the Common Monetary Area (CMA) and the Southern African Customs Union (SACU) are shifting and Eswatini now finds itself at the lower end of the spectrum. In South Africa, inflation moderated to 3.5 per cent in July, Namibia posted 4.2 per cent, and Lesotho 4.0 per cent. By contrast, Eswatini’s inflation cooled further to 2.6 per cent in August 2025, down from 2.8 per cent in July and 4.1 per cent, a year earlier. Such divergence, within an integrated monetary and customs area, has implications for cross-border capital transfers. A relatively low inflation environment strengthens Eswatini’s purchasing power; potentially improving competitiveness, but it also raises questions about alignment with South Africa’s monetary policy anchor. For investors and households alike, the gap may influence decisions on savings, investment and trade across borders.

Snapshot

The Central Statistical Office’s August CPI report underscores this disinflationary momentum. Headline inflation slowed to 2.6 per cent year-on-year, while the month-on-month rate fell by 0.1 per cent, the second consecutive monthly decline. Goods inflation stood at 2.8 per cent, compared to 2.4 per cent for services. Crucially, the composition of inflation shows that housing and utilities contributed 1.2 percentage points to the headline rate, while alcohol, tobacco and narcotics added 0.5 points and food and non-alcoholic beverages 0.3 points. These categories explain most of the price pressures in August, while other groups either had marginal impacts or saw outright disinflation.

Consumers

For consumers, the immediate impact is welcome relief in areas such as food and transport. Food inflation slowed to just 1.4 per cent, supported by declines in vegetables (-0.1 per cent year-on-year) and fish (-2.5 per cent). Transport prices fell by 0.3 per cent, with fuel dropping by 4.6 per cent. At the same time, households remain squeezed by utilities: Water tariffs rose by 8.2 per cent and electricity by nearly 7 per cent. Education costs are also rising faster than the average, up 4.6 per cent overall, with pre-primary education climbing 9.5 per cent. These are unavoidable expenses, meaning that while shoppers see modest savings at the till and the petrol pump, essential services continue to bite.

Business

For businesses, the cooling inflation environment cuts both ways. Retailers and hospitality operators face slimmer pricing power, especially given that restaurants and hotels inflation collapsed from 25.7 per cent in August 2024 to just 1.7 per cent in August 2025. Accommodation services in particular, saw subdued growth, suggesting weaker consumer demand. While lower inflation reduces wage and rental pressures, it also signals that demand may not be strong enough to support robust sales growth. In sectors like food processing, alcohol and utilities, however, rising costs continue to filter through and firms will need to balance competitiveness with cost recovery.

Policy implication

The broader monetary policy trajectory is shaped by Eswatini’s CMA membership. With inflation well below South Africa’s 4.5 per cent, the Central Bank of Eswatini has policy space. Holding or even easing rates could support credit expansion and economic activity. Yet, policymakers must weigh the implications of diverging too far from South Africa, given the peg to the Rand and the risk of destabilising capital flows. Moreover, as inflation falls, real interest rates rise, tightening financial conditions even without policy adjustments. This means that leaving rates unchanged may already be exerting a contractionary effect on borrowing and investment.

From a fiscal standpoint, disinflation offers short-term benefits. Wage negotiations and social transfers, often benchmarked to inflation, may put less strain on government budgets in FY2025/26. However, the flip side is that if disinflation reflects weaker demand and consumption, tax revenues could underperform. Fiscal consolidation could, therefore, be complicated by slower growth, even in a low-inflation environment. Policymakers face the challenge of ensuring that lower inflation does not mask structural weaknesses in household incomes and demand.

For households, the risk is complacency. While food and transport inflation is subdued, the underlying pressures in utilities, education and health remain. Health services rose 3.5 per cent year-on-year in August, a steady increase that erodes disposable income. Similarly, insurance costs surged by 9.3 per cent. These are ‘sticky’ expenses that households cannot easily cut, meaning that perceptions of price relief may be overstated. For businesses, the challenge is to take advantage of the stability by boosting productivity, adopting efficiencies and expanding exports into SACU markets, where relative price competitiveness may improve.

Regionally, Eswatini’s relatively low inflation could make it an attractive destination for investment, particularly if stability is maintained. However, the country’s growth outlook depends less on price stability and more on its ability to stimulate demand, improve infrastructure and deepen structural reforms. Disinflation is not the same as prosperity; if it is driven by weak demand rather than productivity gains, it could signal stagnation rather than strength.

Conclusion

In conclusion, August’s inflation figure of 2.6 per cent marks a turning point in Eswatini’s price dynamics. Consumers may breathe easier, businesses face both relief and constraints and policymakers gain space to manoeuvre. But disinflation is not an end in itself; it is a condition that must be harnessed wisely. Looking ahead, much will depend on external factors such as global oil prices and South Africa’s policy direction. Domestically, administered prices for water, electricity and education are likely to continue rising, sustaining some inflationary pressure.

Inflation dynamics across the Common Monetary Area (CMA) and the Southern African Customs Union (SACU) are shifting and Eswatini now finds itself at the lower end of the spectrum. (Pic: Business Standard)