By Mark Phillips, Head of Portfolio Management and Analytics at PPS Investments

Annual consumer price inflation reached 3.6% in October 2025, an increase from 3.4% recorded in September 2025. The Consumer Price Index rose by 0.1% month-on-month in October. The primary drivers of the 3.6% annual inflation rate were housing and utilities, as well as food and non-alcoholic beverages. In October 2025, the annual inflation rate for goods stood at 3.1%, while services registered a rate of 4.0%.

Recently, South Africa’s finance minister endorsed a 3% inflation target with a tolerance band of 1 percentage point, thereby providing political support to the central bank. This adjustment replaces the previous target range of 3% to 6%, which had been maintained for the past twenty-five years. Minister Godongwana acknowledged the potential challenges involved, noting that the short-term fiscal costs such as reduced nominal GDP and slower revenue growth could complicate achieving fiscal objectives. Nevertheless, he emphasized that the long-term benefits are expected to surpass these initial hurdles.

Over time, a lower target is anticipated to reduce both inflation expectations and actual inflation rates, allowing for the possibility of lower interest rates in the future. The Reserve Bank's initiative to revise the inflation target has contributed to significant gains in South African bonds and currency performance, amid favourable conditions for other emerging markets and rising gold and platinum prices, important export commodities for the country.

Inflation increased less sharply than forecast ahead of the upcoming interest rate decision tomorrow. Economists surveyed by Reuters had projected annual inflation would reach 3.7% in October, compared to 3.4% previously. Forward-rate agreements currently indicate a 72% probability of a 25 basis-point reduction.

It suggests inflation remains contained and slightly below expectations, reinforcing confidence in the Reserve Bank’s credibility, which could support bond prices and ease borrowing costs.