South Africa’s consumer inflation edged up slightly in December, closing the year at 3.6% (up from 3.5% in November) and bringing the annual average for 2025 to 3.2% — the lowest since 2004 and well within the Reserve Bank’s official target of 3%, with a tolerance band of plus or minus one percentage point.
The 2025 average of 3.2% also came in below the Bank’s forecast of 3.3%, Stats SA data on Wednesday showed.
“The 3.2% [level] is the lowest we’ve seen in 21 years, so that is encouraging and in line with the Reserve Bank changing its target,” said Citadel chief economist Maarten Ackerman. The official 3% inflation target was adopted during the 2025 medium‑term budget policy statement in November.
On a month-to-month basis, December prices increased by 0.2%. Headline inflation has largely been driven by rising costs in housing and utilities, food, and financial services.
This uptick comes despite upward pressure from food items such as meat, which saw a 12.6% surge over the year — the highest among food items — and electricity and water tariffs, which remain key contributors to inflation.
Notably, durable goods prices declined further, falling 1.6% year on year, led by steep price cuts in household furnishings and appliances.
“Updating our model with this print suggests that headline inflation will soften over much of this year, starting with a deceleration to below 3.5% year on year in January,” FNB economists noted. “This will be supported by the fall in fuel prices, while food and core inflation could be relatively stable.
“As the year progresses, projected growth in the oil market surplus and a supported rand should keep fuel prices contained while also extending to overall imported, transport, and food costs.”
According to the bank, the current downward pull on cereal and vegetable prices presents downside risk to food inflation in the near term: “In line with this, we note the risk that goods inflation is softer than anticipated.”
While headline inflation nudged up, core inflation — which strips out volatile food, fuel and energy prices — remained subdued at 3.3%, reflecting weak underlying demand in the economy.
This softer core trend aligns with data from the Bureau for Economic Research (BER), which showed that inflation expectations for 2026 and 2027 have declined to record lows of 3.8% and 3.7%, respectively — the lowest since the BER began publishing its survey in 2011.
Stable inflation expectations, which are closely monitored by the Reserve Bank, support the view that there is room for interest rate cuts later in the year.
However, according to FNB and Investec chief economist Annabel Bishop, this is unlikely to happen at next week’s monetary policy meeting.
“With the repo rate currently at 6.75%, 325 basis points above the inflation rate, and with CPI inflation expected to fall below 3.0% year on year in [the second quarter of 2026], the high real interest rate in South Africa supports further interest rate cuts,” Bishop said.
“Indeed, without an additional [50 basis points] cut this year (expected to be spread over two meetings), the real interest rate will rise further, nearing 4.00% midyear. The [Bank] has been very cautious on easing monetary policy, preferring a tight stance.”
According to Bishop, Investec is expecting another 125 basis point cut in interest rates “to be reached in 2029” — “that is when the repo rate reaches 5.50% in South Africa”.
In the meantime, Investec expects the next repo rate cut only in March this year, “as CPI inflation falls to 3.0% year on year in February, lower on a rise in inflation a year ago and the modest inflation environment”.
FNB also predicts the Reserve Bank will stay put at the meeting next week, “but the risk of earlier moves this year are material. Policy will be more conservative if adverse shocks to inflation or risk premia occur.”
Update: January 21 2026
This story has been updated with more comments from economists.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.