SA inflation eases to 3.5% in November, strengthening case for rate cuts in 2026

Annual consumer price inflation (CPI) eased slightly to 3.5% in November, down from 3.6% in October, reinforcing expectations that inflation is moving closer to the South African Reserve Bank’s (Sarb) new 3% target and increasing the likelihood of interest rate cuts next year.

Statistics South Africa (Stats SA) released the latest data on Wednesday, showing that price pressures continue to moderate, supported by lower fuel prices and a stronger rand.

Nicolaas van der Wath, senior economist at the Bureau for Economic Research (BER), said the decline was encouraging.

“The 0.1% month-on-month drop is also good news, and inflation is heading in the right direction towards the 3% target announced by the Sarb. We have seen petrol prices remain relatively lower, which has contributed to the drop in inflation,” he said.

However, Van der Wath cautioned that some factors could still push inflation higher.

“Service charges and utility charges contribute to higher inflation, especially with water challenges and electricity outages. Eskom has improved supply, but there are challenges, and this keeps inflation high. Overall, I don't feel CPI will reach 4% next year, and we should see interest rates being cut in 2026.”

Independent economist Professor Bonke Dumisa said November’s inflation outcome was in line with the new target range.

“It is in line with the new 3% target inflation rate, which states that anything between 2% and 4% is welcome,” he said.

Mark Phillips, head of portfolio management and analytics at PPS Investments, noted that housing and utilities, together with food and non-alcoholic beverages, remained the main contributors to inflationary pressure.

“Goods inflation slowed to 2.9% and services inflation edged higher to 4.1%. The lower inflation print and a decline in two-year inflation expectations to 3.7% may provide the Sarb with greater policy flexibility, with markets pricing in a 50% chance of an interest rate cut at the next meeting,” Philipps said.

Independent economist Ulrich Joubert said the average inflation rate for the first 11 months of the year was 3.1%, placing it close to the Treasury’s target. He added that stable fuel prices and a firm rand could support further disinflation in 2026, paving the way for additional rate cuts.

“So we are pretty much very close to the target of 3%. If we also look at the performance of the rand and the fuel price, the diesel price and the current oil price, then we could assume that fuel prices could decline further in the new year, which is good news for 2026,” Joubert said.

“Overall, one can then say that we can see that interest rates could come down further in 2026.”

Johann Els, chief economist at PSG Financial Services, said the November figure was slightly lower than expected. He highlighted weak inflation in consumer goods, including clothing, vehicles, furniture and appliances, as a positive trend.

Els expects inflation to remain between 3.5% and 4% for most of 2026 and anticipates two 25 basis point interest rate cuts in the first half of the year.

“In terms of the outlook for inflation, I think we're going to have to wait and see. There are big positives from a much stronger rand exchange rate, and the oil price has come down recently to around $60 per barrel,” Els said.

“So I'm looking forward to a petrol price decrease at the start of January. That will help significantly. Continued strength in the Rand and continued low oil prices will likely keep petrol price inflation low.”

Unisa economist Dr Eliphas Ndou said while inflation is moving in the right direction, higher food and utility costs continue to weigh heavily on low- and middle-income households.

“However, the higher contributions to overall inflation from housing and utilities, as well as food and non-alcoholic beverages, suggest that consumers are purchasing expensive food, which disproportionately affects low- and middle-income consumers who allocate a high proportion of their budget to food and utilities,” he said.

North West University Business School economist Professor Waldo Krugell added that easing inflation and global rate cuts could create room for further monetary easing in South Africa next year.

“It may open up space for another interest rate cut next year, especially since the US has cut interest rates. All this translates into less inflationary pressure.”

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