South Africa’s inflation rate rose slightly in December, in line with expectations, but economists say the outlook remains benign enough for further interest rate cuts by the central bank this year.
Headline consumer inflation increased to 3.6 percent year on year in December, up from 3.5 percent in November, according to data released on Tuesday by Statistics South Africa. The figure matched the median forecast of economists polled by Reuters.
Despite the modest uptick, inflation remains comfortably within the South African Reserve Bank’s (SARB) target range of 3 percent plus or minus one percentage point. The statistics agency also said average inflation for 2025 came in at 3.2 percent, the lowest annual rate recorded in more than two decades.
Analysts said the data supports the view that price pressures are well contained, strengthening the case for further monetary easing as the central bank seeks to support a fragile economic recovery.
Core inflation steady
Core inflation, which excludes volatile items such as food and energy, stood at 3.3 percent in December, unchanged from the previous month and in line with economists’ expectations. The stability of the core measure suggests underlying inflationary pressures remain subdued.
At its last monetary policy meeting in November, the SARB cut its benchmark lending rate by 25 basis points to 6.75 percent, citing a favourable inflation outlook and easing cost pressures. The bank’s next policy decision is due on January 29.
“With real rates still quite high, and the inflation outlook both benign and continuing to improve, there should be scope for the SARB to ease policy further,” said Elna Moolman, head of South Africa macroeconomic research at Standard Bank.
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She said a further rate cut was likely at one of the next two policy meetings, with a slightly stronger probability of a move in January rather than March.
Independent economist Elize Kruger said the case for another 25-basis-point cut had strengthened since the central bank’s previous meeting. She pointed to a firmer rand exchange rate and declining inflation expectations as factors giving policymakers more room to ease.
Drivers of December inflation
Statistics South Africa said the main contributors to the slight rise in headline inflation in December were housing and utilities, food and non-alcoholic beverages, and insurance and financial services.
Food prices have remained relatively stable in recent months, helped by easing global commodity prices and improved local supply conditions, although some categories have continued to see moderate increases.
Housing and utilities costs, including electricity and municipal services, remain a structural pressure on household budgets, while insurance and financial services have been influenced by adjustments in premiums and fees.
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Economists said the composition of inflation suggests that price increases are being driven more by administered and service-related costs than by demand-side pressures, reinforcing expectations that inflation will remain under control in the near term.
Policy outlook
The SARB has maintained a cautious approach to easing, balancing the need to support growth against concerns about global financial volatility and domestic risks, including fiscal pressures and electricity supply constraints.
South Africa’s economy has struggled to gain momentum, with weak consumer spending, high unemployment and ongoing infrastructure challenges weighing on growth. Lower interest rates could help ease borrowing costs for households and businesses, although analysts warn that monetary policy alone cannot resolve the country’s structural problems.
Global factors will also remain important for the central bank’s decision-making. Shifts in U.S. monetary policy, movements in the dollar and changes in global risk sentiment could influence capital flows and the rand, potentially affecting the inflation outlook.
For now, economists broadly agree that the inflation environment gives the SARB flexibility to continue easing gradually, provided there are no major external shocks.
“The data reinforces the view that inflation risks are skewed to the downside,” said one Johannesburg-based economist. “That gives the central bank room to cut rates further, even if it chooses to move cautiously.”
As policymakers prepare for their January meeting, markets will be watching closely for signals on the pace of easing in 2026, with most analysts expecting at least one or two additional rate cuts over the course of the year if inflation remains well behaved.
