South Africa’s consumer inflation is anticipated to rise back above the lower end of the Reserve Bank’s 3% to 6% target range in July 2025, after remaining below it for three consecutive months. In May, the Consumer Price Index (CPI) registered at 2.80% year-on-year. Economists forecast a slight rise to 2.90% in June and 3.10% in July. This projected increase is largely due to diminishing base effects from 2024 and a rise in costs for government-regulated services.

The South African Reserve Bank (SARB) is unlikely to reduce interest rates during this month’s Monetary Policy Committee (MPC) meeting due to mounting inflationary pressures. Since September last year, SARB has already implemented a full percentage point cut. The recent hike in fuel prices is expected to contribute an additional 0.1 percentage point to the July inflation figure. The official CPI data for July is set to be released by Statistics South Africa on 23 July.

Despite this short-term uptick, there is still potential for further rate cuts later in the year. Economists forecast that another cut could come in November, possibly bringing the prime lending rate down to 10.50%. Should inflation continue to ease and end the year at around 4%, the SARB may implement additional reductions, potentially lowering the prime rate to 9.50%. While SARB currently views inflation risks as balanced, it has
cautioned that a weakening rand and changes in trade policies could lead to upward price pressures.

After a sustained decline in inflation over the past two years, this trend now appears to be reversing. Analysts expect consumer inflation to average 3.20% in 2025, aligning closely with SARB’s own forecast. The central bank believes the recent low CPI print offers a solid foundation for a moderate inflation path, supported by limited increases in fuel and electricity prices, and a relatively stable rand exchange rate.

Nonetheless, data from the Bureau for Economic Research (BER) provides a more optimistic outlook. Its second-quarter survey reveals that inflation expectations for 2025 have dipped below the 4% level for the first time in four years. Furthermore, expectations for 2026 and 2027 have also seen declines, suggesting increased confidence in long-term price stability. Although inflation is expected to edge higher in the short term, the overall outlook for the coming years remains stable, with the potential for interest rate reductions should disinflation persist.

SA’s inflation rate forecast

Bottom Line

We are at a very interesting juncture in South Africa’s monetary policy review. We know that the reserve bank governor has been pushing for lower inflation targets which would suggest a harder stance on inflation. Yet, with the economy in stagnation, it will be a challenge to implement a tougher stance when economy stakeholders are desperate for lower interest rates and job creation. At the same time the currency seems relatively strong in recent months, which would suggest some room to cut.

Macroeconomics in brief