The chief economist expects interest rate cuts to start in 2027 if average inflation is 4.3% in 2026.
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Inflation rose slightly in September, with economists forecasting an average inflation rate of 4.3% in 2026, suggesting the South African Reserve Bank (Sarb) can start its interest rate cut cycle.
Annual consumer price inflation (CPI) was 4.5% in September 2026, up from 4.4% in August 2026. Inflation rose 0.4% month on month in September 2026.
PSG Financial Services Chief Economist Johann Els noted the numbers came in slightly better. He had forecasted 4.6%.
Consumer price inflation is the rate at which the average price of a standard basket of household goods and services increases over time, which reduces the purchasing power of your money.
Rental inflation
He said the main positive surprise was probably rentals. Actual rental inflation slowed from 4.1% to 3.9%, while owners’ equivalent rent eased from 4.0% to 3.8%.
“Rentals carry a fairly big weighting of around 17% in the CPI basket, so this is significant. Rental prices are surveyed quarterly, with the previous survey in June.”
Food inflation remains low, although it increased from 0.7% year on year in August to 1% in September.
“Consumer goods inflation is also well contained, unchanged at just 0.6% year on year. This is the weighted average for categories including furniture, clothing, footwear, appliances and vehicles. There is a mix of numbers within these categories, but plenty of negative readings. Air fryers, for example, are down 17.6% year on year, while new SUVs are down 0.2%.”
Second-round inflationary pressure
Els added that the key point is that there is still very little evidence of second-round inflationary pressure.
“Apart from the direct impact of higher petrol prices, there have been some increases in transport costs, including taxis and public transport, but little evidence of broader price pressures elsewhere.”
Looking ahead, he said he expects inflation to rise to slightly above 5% in October and November.
“From around April next year, however, base effects should start bringing inflation down again. By the second half of 2027, we could be back around 3%, or even lower. Much will depend on the extent of the decline in oil prices that I expect next year, and the resulting reduction in petrol prices.”
Interest rate cuts
Els’ forecast is for average inflation of 4.3% in 2026 and 3.3% in 2027. “This means we can start thinking about interest rate cuts again in the second half of next year.”
He said he does not see the need for further interest rate increases for the rest of the year.
“The Reserve Bank has been pre-emptive, hiking in May and again in September. There are risks, of course. The sharp petrol price increase at the start of October could lead to further second-round effects.
“But it is also important to remember that sustained higher petrol prices can ultimately be deflationary. They squeeze household budgets and increase business costs, depressing spending. Consumers also tend to substitute more expensive goods and services with cheaper alternatives, putting downward pressure on inflation.
“All in all, this is a better inflation number and reduces the case for further rate increases. By this time next year, we could be talking about interest rate cuts again.”
