South Africa Inflation Moderately Softens to 3.5% y/y in November
Bottom Line: Statistics South Africa (Stats SA) announced on December 17 that annual inflation softened moderately to 3.5% y/y in November from 3.6% the previous month, but food and restaurant prices remained worrisome. Despite inflation staying within the South African Reserve Bank’s (SARB) 1 percentage point tolerance band of new 3% target, we think possible increases in utility costs and stubborn food prices could likely continue to pressurize prices in 2026. We now foresee average inflation will hit 3.8% and 3.5% in 2026 and 2027, respectively, supported moderately by long lagged impacts of previous tightening, and a relatively stable ZAR.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2010 – April 2026
Source: Continuum Economics
After hitting 3.6% in October, annual inflation edged down to 3.5% y/y in November due to cooler rates for transport and recreation prices. On the fuel front, prices dropped by 2.2% between October and November, bringing the annual rate for fuel down to 0.1%. According to StatsSA announcement on December 17, food & non-alcoholic beverages (NAB), restaurants & accommodation services, and alcoholic beverages & tobacco recorded higher rates. Annual core inflation slightly edged up to 3.2% in November from 3.1% in October. MoM prices edged down by 0.1% November from October.
One good news for South Africa’s inflation outlook has been the drop in inflation expectations in Q4. The Bureau for Economic Research’s (BER) latest survey for the SARB in December showed that in Q4 2025 (the first survey after the inflation target changed to 3%), the two- and five-year inflation expectations on average, fell to a record low of 3.7% (from 4.2% before). Next-year expectations were also down by a significant margin (0.4% pts) to 3.8%. Household inflation expectations resumed its downward trend, after a brief pause in Q3; one-year expectations were observed at 5.3% (5.5% previously).
We still feel a significant risk factor for the inflation trajectory is the power cuts (load shedding) as Stage 2-3 load shedding was implemented in Q2. (Note: Eskom announced on December 12 that South Africa has now experienced 210 consecutive days without an interrupted supply, with only 26 hours of loadshedding recorded in April and May). Despite few load shedding in H2, some energy analysts think blackouts are still a threat and further power disruptions are likely while continued investment build out of energy infrastructure remain the key.
Additionally, global uncertainties such as 30% additional tariffs over South Africa by the U.S. is a threat, particularly for South African cars manufacturers and agricultural producers. Despite talks on a possible trade deal continuing between the U.S. and South Africa, no trade deal is signed by the end-2025 is worrisome, partly showing Trump’s discontent about South African politics. (It is worth mentioning that U.S. tariffs are disinflationary, as it would hurt South Africa exports and output/employment).
Despite inflation staying within the SARB’s 1 percentage point tolerance band of new 3% target, we think possible increase in utility costs and stubborn food prices could likely continue to pressurize prices in 2026. We now foresee average inflation will hit 3.8% and 3.5% in 2026 and 2027, respectively, supported moderately by long lagged impacts of previous tightening, and a relatively stable ZAR.
We believe the key for the inflation trajectory will be the global developments, tariffs, government’s determination to address the electricity shortages, logistical constraints and financing needs – though we forecast a decline in oil prices, which will help on the margin.