South Africa inflation falls to eight-month low in February, rate cut unlikely

South Africa’s inflation slowed in February to its lowest level in eight months, but the central bank is unlikely to cut interest rates at its upcoming policy meeting as it assesses the potential impact of rising oil prices linked to tensions in the Middle East.

Consumer prices in Africa’s biggest economy, rose three percent year-on-year in February, down from 3.5 percent in January, marking the lowest reading since June 2025, according to data released Wednesday by Pretoria-based Statistics South Africa. The figure came slightly below the 3.1 percent median estimate of economists surveyed by Bloomberg.

The slowdown in headline inflation was largely driven by lower transport costs. Transport prices fell 2.1 percent, extending a 0.2 percent decline recorded the previous month, as fuel prices dropped 10.1 percent year-on-year, a sharper fall than the 3.7 percent decline in January.

Food inflation also moderated, with prices of food and non-alcoholic beverages rising 3.7 percent, compared with 4.4 percent in January.

Core inflation — which excludes food, non-alcoholic beverages, fuel and energy — eased to a seven-month low of 3 percent, down from 3.4 percent in January. On a monthly basis, the consumer price index increased 0.4 percent, slightly faster than the 0.2 percent rise recorded in the previous month.

Despite the easing price pressures, economists say the South African Reserve Bank (SARB) is likely to keep its key interest rate unchanged at next week’s monetary policy meeting.

At its first meeting of the year, the central bank’s Monetary Policy Committee (MPC) kept the repo rate at 6.75 percent, where it has been since September, and maintained the prime lending rate at 10.25 percent, with policymakers opting for a cautious stance as they monitor inflation risks.

Analysts expect a similar outcome when the MPC meets again on March 26, as the recent surge in oil prices following the outbreak of conflict involving Iran could push inflation higher in coming months.

“The implication is a materially longer hold rather than an immediate tightening response,” Morgan Stanley economist Andrea Masia wrote in a research note. He expects the central bank to remain on hold through most of 2026, before resuming its easing cycle in November, followed by two 25-basis-point cuts in 2027, which would bring the repo rate to 6 percent.

Oil prices have climbed roughly 45 percent since the conflict began on February 28, raising concerns that energy costs could reverse the recent disinflation trend.

Based on an outlook where oil prices remain between $90 and $100 per barrel for several months, Morgan Stanley forecasts that the country’s inflation could temporarily accelerate, while economic growth weakens. As of early Wednesday, bent crude was $103.2 per barrel.

Under this scenario, inflation is projected to rise from 3.5 percent to a peak of about 4.3 percent in April, before easing to around 3.4 percent by the end of 2026. The SARB targets inflation at three percent, with a one-percentage-point tolerance band on either side.

“The MPC would prefer to look through this situation for as long as markets will allow, focusing instead on the still-downward path of inflation expectations and an inflation forecast that still hits the target within the forecast horizon,” Masia said.

Higher oil prices pose a direct risk to South Africa by increasing fuel costs and weakening the rand, which in turn raises the price of imported goods.

Morgan Stanley estimates that a 10 percent rise in oil prices could add about 40 basis points to inflation once broader price spillovers are taken into account.

A more significant risk would emerge if oil prices rise further or if inflation expectations begin to accelerate — a scenario that could force the central bank to consider rate hikes later this year.

Such pressures could become clearer around September, when new inflation expectations data will be released ahead of another SARB policy meeting.

Meanwhile, the global firm has cut its 2026 growth forecast for South Africa to 1.7 percent from two percent, citing weaker consumer spending, tighter financial conditions and currency volatility.