The inflation rate behaved as expected in December and also reached its lowest point since 2004, creating a benign outlook that suggests there could be another repo rate cut – even as early as next week.
The inflation rate for December was supported by a stronger rand exchange rate and lower fuel prices. The same factors should keep inflation stable this year as well, Jee-A van der Linde, senior economist at Oxford Economics Africa, says.
Headline inflation increased to 3.6% in December from 3.5%, in line with economists’ projections. Core inflation edged up to 3.3% in December from 3.2% in November. The latest data also shows that goods inflation increased to 3.0% in December from 2.9% in November, while services inflation increased to 4.2% from 4.1% previously.
The main contributors to the December inflation print were housing and utilities (+4.9%), food and non-alcoholic beverages (+4.4%), and insurance and financial services (+7.0%). Meanwhile, food inflation held steady at 4.4% in December, with inflation for cereal products increasing to 2.1%, while meat inflation continues to sizzle (+12.6% after sporadic foot-and-mouth disease outbreaks across parts of the country last year.
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Lowest inflation rate in 21 years
Van der Linde says the December print completes the calendar year, with an average inflation rate of 3.2% for 2025, the lowest rate since 2004, when it was 1.4%. “Inflation is forecast to average 3.5% this year, partly due to base effects.
“The benign outlook suggests there is scope for further policy easing in 2026, with the Reserve Bank expected to lower the repo rate by a cumulative 50 basis points, possibly starting as early as January. A firmer rand, together with lower international oil and domestic maize prices, should keep a lid on inflationary pressure throughout the year.”
He points out that these factors may also help push inflation expectations even lower. “The inflation expectation surveys for the fourth quarter indicate that inflation will average 3.8% in 2026 and 3.7% in 2027, down from roughly 4.2% in the third-quarter survey.
“The downward revisions are notable and bode well for South Africa’s transition to the new 3% inflation target. However, structural inefficiencies mean administered prices will continue to increase rapidly – especially energy prices.”
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December figures interesting reading
Hayley Parry, money coach and facilitator at 1Life’s Truth About Money, says the new inflation figures make for interesting reading. “We can see that inflation ticked slightly higher from 3.5% in November to 3.6% in December.
“What is most interesting is to look at this from a consumer perspective for 2025 as a whole. I think one of the standout features is that the projected inflation rate of 3.2% for 2025 is the lowest in 21 years. This is down from 4.4% in 2024 and 6% in 2023.
“But you might be looking at these figures and thinking: how is this related to my budget, because it does not feel like an average of 3% of inflation for me and my personal budget? Where things really get interesting is when we look at the different spending categories and how each has been affected by inflation over the past year.”
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How inflation affects the ‘Three Fs’
Parry looks at what she calls the “Three Fs”: fuel, food, and fees.
Fuel: There was an average increase of 0.6% in fuel prices over the 12 months to December. However, if you drive a diesel car, your costs sit at 3.7% over the course of the year compared to 0.1% if you drive a petrol car. “There is quite a significant difference between those two figures.”
Food: Again, there is a wide variety here, Pary says, and uses two examples: eggs are 8.8% cheaper than they were a year ago, while steak, on the other hand, is 29% more expensive at the end of 2025 compared to the beginning of the year. “If you have steak in your basket, this will definitely have a negative impact on your budget.”
School fees: School fees tell another interesting story, Parry says. According to statistics released by BusinessTech this month, they showed an increase across more than 40 private schools in South Africa. Those school fees increased by an average of 6.4%, with some schools going as high as 8.8%. “In terms of increase, this is well above the projected average inflation rate of 3.2% for 2025.”
Parry says families with children in private schools will find that these above‑inflation increases place additional pressure on personal finances.
“Where things become even more interesting is that the South African Reserve Bank is meeting on 29 January. It will be worth watching Governor Kganyago’s decision, considering these latest inflation figures, to see whether they translate into an interest rate reduction, which would offer consumers some relief.”
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Another economist expects a repo rate cut or two this year
Frank Blackmore, lead economist at KPMG South Africa, says that given the December number for inflation of 3.6%, 2025 on average had an inflation rate of only 3.2% for the year. “Our view for inflation for next year will be slightly higher than this rate, and the reason is not because we see month-on-month changes increasing that much but because of the base effects in calculating the inflationary numbers.”
What this means is inflation is calculated on a month-to-month basis, and economists compare January 2026 to January 2025, and if there has been a small change in terms of inflation last year, it may result in the same month-to-month change to a slightly higher level of inflation, Blackmore says.
“We therefore expect inflation to come in around 3.7% in 2026. This will not deter the Reserve Bank from reducing the repo rate further throughout 2026 because the expectations for inflation are converging on the new target of 3%, and in our prediction, we can therefore expect an additional 50 basis points of cuts through 2026.”
