JOHANNESBURG, Oct 16 – South Africa’s inflation outlook remains exposed to rising global energy and food prices, with consumer price growth expected to return to the South African Reserve Bank’s 3% target only in 2028, Governor Lesetja Kganyago said.
Speaking to Reuters on the sidelines of the International Monetary Fund and World Bank annual meetings in Bangkok, Kganyago said inflation was forecast to average 4.4% in 2026, before easing into the central bank’s tolerance band in 2027 and returning to the target two years from now.
The outlook suggests monetary policy could remain restrictive as the central bank seeks to contain price pressures. In September, the bank raised its benchmark interest rate by 25 basis points to 7.25%, following a pause in July.
Energy and Food Prices Pose Inflation Risks
The central bank governor identified geopolitical uncertainty, oil prices, fertiliser costs and potential disruptions to agricultural supply chains as key risks to the inflation outlook.
“The risks to the outlook, of course, they have to do with the geopolitical uncertainty, which feeds into the oil price, what’s happening with fertiliser prices and what that could mean for the food outlook, there’s the risk of El Niño and there is risk to the grain supply chain through the Black Sea,” he said.
These pressures could complicate efforts to bring inflation back to target. Higher oil prices can increase transport and production costs, while more expensive fertilisers can raise agricultural input costs and feed into food prices.
Weather-related disruptions, including the risk of El Niño, could also affect agricultural output. Meanwhile, interruptions to grain shipments through the Black Sea could add pressure to international food markets and domestic prices.
“So far, the measures of underlying inflation point to an upturn in inflation, and that is a concern.”
The governor’s comments indicate that the central bank remains concerned about underlying price pressures, even as the inflation outlook anticipates a gradual moderation over the coming years.
Inflation Rises as Central Bank Maintains Tight Policy
South Africa’s headline inflation rate increased slightly to 4.4% year-on-year in August, according to the latest data cited in the report. Housing and utilities, transport, and insurance and financial services were the main contributors to the increase.
The Reserve Bank’s September rate increase was unanimous, following its decision to hold rates in July. The next monetary policy decision is scheduled for November.
Kganyago described the current policy rate as “moderately restrictive” but did not indicate whether the bank would raise rates again.
Future decisions would be taken “meeting by meeting”, he said, suggesting that the policy path would depend on incoming inflation data and the evolution of risks to the outlook.
For businesses and households, the combination of elevated borrowing costs and persistent price pressures could continue to influence credit demand, consumption and investment decisions. The central bank faces the challenge of restraining inflation without imposing unnecessary pressure on economic activity.
Rand Stability Provides Some Relief
A relatively stable rand has helped offset some imported inflationary pressures, according to Kganyago. The currency had changed little so far in 2026 despite a stronger US dollar.
The exchange rate matters for South Africa because imported energy and other commodities can become more expensive in rand terms when the currency weakens. A stable currency can therefore limit the domestic impact of increases in international prices.
“In the past, when you had the oil price rise, we would have had a depreciation of the currency as well. It has been fairly stable (this year), but still that is no case for us to be complacent,” he added.
Kganyago attributed the currency’s resilience in part to fiscal consolidation and an appropriate monetary policy stance.
However, exchange-rate stability does not eliminate the risk that higher global commodity prices will feed into domestic inflation. The outlook remains sensitive to developments in energy markets, agricultural input costs, geopolitical tensions and international supply chains.
With inflation expected to return to the 3% target only in 2028, the Reserve Bank’s approach in the coming months will remain important for borrowing costs, currency stability and the broader economic outlook.
