South Africa: Inflation decelerates in January from December
Latest reading: Consumer prices rose 3.5% on a year-on-year basis in January, following a 3.6% increase in the previous month. January’s print slightly overshot market expectations and remained above the midpoint of the South African Reserve Bank’s new 2.0–4.0% target band.
Relative to the prior month’s data, there were reduced price pressures for housing and utilities (+4.8% in annual terms vs +4.9% in December) and transportation (-0.2% vs +1.0% in December). The variation in food and non-alcoholic beverages prices was the same as in the prior month (+4.4% in January and December).
Meanwhile, core consumer prices were up 3.4% in annual terms in January, following a 3.3% increase in the prior month.
Lastly, consumer prices rose 0.19% in January on a month-on-month basis, the same as the prior month’s reading.
Outlook: Our Consensus is for inflation to average close to its current level for the foreseeable future, topping the midpoint of the Central Bank’s target range.
Overall, inflation will rise in 2026 from 2025’s 21-year low but remain below the past 10-year average: A strong rand and record-low inflation expectations should largely offset upside pressures from lower interest rates and the continued recovery in purchasing power.
Factors to watch include extreme weather, power cuts and commodity price spikes. In particular, a prolonged conflict in the Middle East poses an upside risk to prices; if the Strait of Hormuz remains closed for an extended period, inflation will accelerate.
Panelist insight: On the outlook, analysts at Emerging Market Watch noted:
“South Africa depends heavily on imported fuel products and the combination of higher oil prices and a weaker currency would quickly translate into higher petrol and diesel prices, feeding directly into headline inflation and raising the risk of second-round effects through transport costs, food prices and administered prices.”