Big inflation surprise for South Africa

Consumer price inflation dropped to a surprising low of 2.7% in March 2025, giving some hope for further interest rate cuts in South Africa despite unsettled markets.

Annual consumer price inflation declined more than expected from 3.2% in February 2025 to 2.7% in March 2025, below the South African Reserve Bank’s target range of 3% to 6%.

The last time inflation was lower than this was in June 2020, when it reached 2.2% during the Covid-19 pandemic.

The number was far lower than economist predictions of flat rates around 3.1%.

The CPI increased by 0.4% month-on-month in March 2025. Stats SA said the decline was mainly due to lower fuel prices and softer tuition inflation.

The fuel index softened by 0.4% from February 2025, taking the annual rate from -3.6% to -8.8%. A litre of 95 petrol inland dropped from R24.45 a year before to R22.34 in March. 

Education fees are also surveyed once a year in March. The price index for education increased by 4.5%, a drop from the 6.4% rise in 2024. 

School fees increased by 5.0% from 6.6% in 2024. Tertiary education institutions charged 3.7% more in 2025 than the 5.9% rise recorded the year before.

The annual rate for food & non-alcoholic beverages (NAB) edged lower to 2.7% in March from 2.8% in February. 

Vegetables, fruits and nuts, cereal products, meat, and fish registered higher annual rates. In comparison, oils and fats, hot beverages, milk, other dairy products, eggs, cold beverages, sugar, confectionery, and desserts had lower rates.

Inflation for cereal products accelerated to 4.3% in March from 3.9% in February. Maize meal remains a key driver, accelerating from 10.6% in February to 13.1% in March. 

Coffee and tea drinkers also continue to feel the pain. Although the annual rate for the hot beverages category declined slightly in March, it remains high at 14.4%. 

The category has seen double-digit inflation in all but 5 of the 32 months since August 2022. Instant coffee is 18.8% and black tea 12.8% more expensive than a year ago.

Alcoholic beverages also added pressure, with prices rising on average by 2.1% between February and March. This took the annual rate from 4.1% in February to 4.7% in March. 

Housing rents for the first quarter were also surveyed in March, with actual rentals increasing by 2.9% and owners’ equivalent rent by 2.4%. 

It may not be enough 

Despite the drop in inflation, economists across South Africa expect the SARB to keep rates on hold over the next six months amid extreme uncertainty. 

The SARB’s Monetary Policy Committee (MPC) will meet again in May 2025. Sanisha Packirisamy, Economist at Momentum Investments, believes the six-member committee will keep rates on hold. 

Packirisamy believes the MPC will keep rates on hold again in  July and September. South Africans may only see the SARB change rates again in November, if at all. 

She noted that the holds reflect increased caution amid rising tariff concerns from the United States.

 The cautious stance will likely persist as key risks begin to materialise, including the United States’s 10% universal tariff. 

This is major shift from the start of the year, when many economists expected another 50 to 75 basis points worth of cuts in South Africa. 

The Reserve Bank cut interest rates by 75 basis points between October 2024 and January 2025, bringing the repo rate down to 7.5%. 

The MPC decided to keep the rates at 7.5% in March, but the vote was not unanimous. Two of the six members voted for a 25-basis-point cut.

Although the latest inflation print is a positive sign for interest rates, the SARB has repeatedly noted that interest rate decisions are based on the expected future moves of inflation.