South African consumers received a mixed bag of news regarding inflation rates as Statistics South Africa released the Consumer Price Index (CPI) figures for December.
The CPI inflation rate ticked up slightly to 3.6% year-on-year from 3.5% in November, alongside a month-on-month increase of 0.2%.
However, economists project a retreat back to the inflation target of 3.0% within this quarter.
Annabel Bishop, Chief Economist at Investec, highlighted the crucial components affecting this inflationary shift.
“A small rise in fuel prices, which added 29 cents per litre, made a modest 0.07% contribution to the CPI’s month-on-month result. Additionally, the usual seasonal influence from housing and utilities also played a role, contributing roughly 0.1%. A silver lining emerges as January’s anticipated fuel price cut of 66 cents per litre is expected to lower inflation by about 0.2% month-on-month. February’s forecast points to an even larger cut of 77 cents per litre, likely to counteract the usual inflationary tendencies observed at the start of the year,” Bishop said.
Food and non-alcoholic beverage inflation held steady at 4.4% year-on-year.
The situation appears promising as global food prices saw a decline of 1.3% month-on-month in December while the rand appreciated by 2.4% against the US dollar, significantly contributing to maintaining food inflation at manageable levels.
“Going into January, the USDZAR exchange rate continued to strengthen, averaging a further 2.4% month-on-month, while global food prices decreased by 2.0%. These factors are expected to further moderate inflationary pressures as we continue into 2026,” Bishop added.
Forecasts indicate that CPI inflation may settle at approximately 3.0% year-on-year in February, potentially dipping below that mark as we move through the second quarter of 2026.
Analyst Frank Blackmore, Lead Economist at KPMG South Africa, noted that a rise towards 3.5% in inflation may be expected by November, largely due to statistical base effects from the preceding year when CPI fell marginally.
“Additionally, market projections suggest that while the Monetary Policy Committee (MPC) is unlikely to enact interest rate cuts in January, a 25 basis point reduction is anticipated in March, aligning with broader expectations for a proactive monetary approach throughout 2026. This comes despite the inflation rate for 2025 averaging only 3.2% due to anticipated rises stemming from base effects, pushing projections for 2026’s average inflation to about 3.7%,” Blackmore added.
Blackmore further said, “The main contributor to this inflation was housing and utilities, which added 1/3 or 1.2 percentage points of that 3.6% and most notably there it was obviously both electricity price increases at 7.9% and water at 7% that did most of the increase there.”
These developments, while raising eyebrows among economists, also signal a broader strategy for managing inflation and interest rates in the coming year, underlining the resilient nature of the South African economy as it negotiates these multifaceted challenges.
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