MONETARY POLICY
REVIEW
OCTOBER 2025

Headline inflation

OCTOBER 2025
© South African Reserve Bank
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without fully acknowledging the Monetary Policy Review of the South African Reserve Bank as the source. The contents of this publication
are intended for general information purposes only and are not intended to serve as financial or other advice. While every precaution is taken to ensure the accuracy of
information, the South African Reserve Bank shall not be liable to any person for inaccurate information or opinions contained in this publication.
Enquiries relating to this Monetary Policy Review should be addressed to:

Head: Economic Research Department

South African Reserve Bank

P O Box 427

Pretoria 0001

Tel. +27 12 313 4416
www.resbank.co.za


ISSN: 1609-3194
Printed by the South African Reserve Bank
OCTOBER 2025
Preface
The primary mandate of the South African Reserve Bank (SARB), as set out in section 224 of the Constitution, is to achieve
and maintain price stability in the interest of balanced and sustainable economic growth. In addition, the SARB has a
complementary mandate to oversee and maintain financial stability.
Price stability helps to protect the purchasing power and living standards of all South Africans. It provides a favourable
environment for investment and job creation, and supports international competitiveness. The goal of price stability is
quantified through an inflation target, which is set in consultation with government. The target is a band of 3–6%, which has
been in place since 2000.
Monetary policy decisions are made by the SARB’s Monetary Policy Committee (MPC), which is chaired by the Governor and
includes the Deputy Governors and other senior officials of the SARB.
The inflation-targeting framework is flexible, meaning that policymakers will seek to look through temporary shocks, thereby
avoiding excessive volatility in interest rates and economic output. The MPC takes a forward-looking approach to account for
the time lags between policy adjustments and economic effects. MPC decisions are communicated at a press conference at
the end of each meeting, accompanied by a comprehensive statement.
The Monetary Policy Review (MPR) is published twice a year and is aimed at broadening the public’s understanding of
the objectives and conduct of monetary policy. The MPR covers domestic and international developments that affect the
monetary policy stance.
The MPR is presented by senior officials of the SARB at Monetary Policy Forum meetings held at major centres across South
Africa in an effort to develop a better understanding of monetary policy through direct interactions with stakeholders.
Questions about the publication may be directed to Marlene Hugo at
OCTOBER 2025
Contents
Policy for the long term

Boxes


OCTOBER 2025
Policy for the long term
Executive summary and
overview of the policy stance
Headline inflation has hovered around 3% since October 2024,
opening up the prospect of further improvement in the stability
of South Africa’s price level. With muted core price pressures
and moderating inflation expectations, the outlook remains
benign. In July 2025, the Monetary Policy Committee (MPC)
announced a preferred inflation objective of 3%, aiming to lock
in recent disinflation gains and to lower equilibrium interest rates.
While headline inflation is expected to rise in the short term, it
is forecast to fall back to the 3% objective by 2027. Following
75 basis points of cuts from September 2024 to March 2025,
the MPC reduced rates by a further 50 basis points to 7% over
the review period (April–October 2025). The global environment,
however, remains highly uncertain due to ongoing tariff risks to
inflation and geopolitical tensions. Major global central banks
have cut rates, and markets expect further modest reductions
later this year, even though inflation remains elevated in some
major economies.
Global economic developments
Waiting game
Over the past six months, the global economy has proven
resilient following the market sell-off triggered by the United
States’ (US) ‘Liberation Day’ tariff announcement in April 2025.
As potential tariffs soared, so too did economic uncertainty,
spiking in April before easing as new trade deals were struck
and tariff rules clarified. So far, global supply chains have held
up well, as exports surged ahead of tariff implementation,
while real incomes and improved financial conditions spurred
domestic demand. As a result, global economic activity grew
at a better-than-expected annualised rate of 3.2% in the first
half of 2025.1
1 See Organisation for Economic Co-operation and Development
(OECD), Economic Outlook, Interim Report September 2025: Finding
the right balance in uncertain times, Paris: OECD Publishing, 2025.

Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Headline inflation
Headline
Preferred objective
Sources: Stats SA and SARB
Percentage change over 12 months
3–6% inflation target band

Sep 2025: 17.9
Apr 2025: 28.0

US effective tariff rate
Source: Yale Budget Lab
Per cent

OCTOBER 2025
The performance of individual economies has, however,
varied, and prospects appear mixed. Tariffs may adversely
impact growth in the US and China as costs rise while
consumer and business confidence softens. In contrast, other
major economies – such as the eurozone, Japan and the
United Kingdom (UK) – may grow slightly faster than previously
expected.2 Overall, global growth forecasts for 2025 have
generally been revised upward, even if the outlook for the backend of the year is still uncertain.3 Fiscal stimulus measures in
the US, Europe and China may provide additional support to
global growth.
Overall, the South African Reserve Bank (SARB) projects
trading-partner growth of 2.5% this year (lower than in the April
Monetary Policy Review (MPR)), increasing to 2.9% in 2026
and 3.2% in 2027.
Turning to prices, global inflation continued to ease over the past
year, as energy and food prices moderated, and as currencies
strengthened in many economies, primarily against the US
dollar. Global disinflation also benefitted from the lagged effects
of tighter monetary policies and cooling labour markets. After
averaging 5.7% in 2024, global inflation is projected to decline
to 4.2% in 2025 and to 3.7% in 2026.4 While global disinflation
is set to continue, risks to the inflation outlook are evident and,
despite inflation broadly easing, it remains above target in several
major economies.5 For instance, US personal consumption
expenditure inflation reached a low of 2.3% in April this year but
rose to 2.7% in August, coinciding with a pickup in inflation of
trade-exposed products.6
Disinflation provided space for central banks to ease policy over
the past year, but the pace and magnitude has varied, reflecting
domestic idiosyncrasies. In the US, the Federal Reserve (Fed)
kept interest rates unchanged from December 2024 until
September 2025, when weaker-than-expected employment
data prompted a 25 basis points rate cut. In contrast, the
European Central Bank (ECB) reduced rates more decisively,
supported by subdued demand, lower energy prices and a
stronger euro. The Bank of England (BoE) also lowered rates,
but sticky services inflation and high wage growth suggest that
further rate cuts are unlikely this year. Meanwhile, the Bank
of Japan (BoJ) kept rates steady, balancing risks to growth
against a nominal policy rate below its neutral level.
2 The United States (US) economy is expected to slow to 2% this
year from 2.8% in 2024, and China to 4.8% from 5% in 2024.
The eurozone is projected to expand by 1.2% from 0.9% in 2024,
the United Kingdom (UK) by 1.3% (1.1%) and Japan by 1.1%
(0.1%). See International Monetary Fund (IMF), World Economic
Outlook (WEO), Washington, D.C.: IMF, October 2025.
3 The IMF upgraded its global growth projections to 3.2% for this
year and 3.1% for 2026 in its October 2025 WEO, up from 2.8%
and 3% for 2025 and 2026 respectively in the April WEO.
4 IMF, WEO, Washington, D.C.: IMF, October 2025.
5 The consumer price index rose by 3.8% in August 2025
in the UK, unchanged from the previous month, and
increased by 2.7% in Japan, from 3.1% in July.
6 G Meyer, ‘Impact of Trump tariffs is beginning to show in US
consumer prices’, Financial Times, 5 October 2025.
-2

UK
US
Japan
Eurozone
Sources: National statistical offices
Percentage change over 12 months
Target
Headline inflation in advanced economies
-1

2019 2020 2021 2022 2023 2024 2025 2026
US
UK
Eurozone
Japan
Sources: Bloomberg Consensus and central banks
Per cent
Forecast
Policy rate projections in
advanced economies


Contributions to trading-partner growth*
Rest of the countries (26.3%)
Sub-Saharan Africa (22.5%)
China (13.7%)
Japan (5.8%)
Eurozone (22.5%)
US (9.4%)
South Africa's trading partners, Mar 2025
South Africa's trading partners, Sep 2025
* Weights in brackets
Source: SARB
Per cent

OCTOBER 2025
Emerging market economies have generally eased policy in
response to improved inflation outcomes and outlooks. As a
result, the scope for further rate cuts is now limited, except in
major Latin American economies and Russia, where inflation
remains high. Persistent global economic uncertainty continues
to threaten renewed market volatility and a shift towards
safer assets, which may result in currency depreciation and
increased inflation.
Despite broadly better near-term economic results, structural
challenges remain. Fiscal slippage in advanced economies,
along with increased borrowing to fund climate- and defencerelated investments, has worsened fiscal pressures and
pushed public debt to new highs across a wide range of
economies. Large fiscal deficits and rising debt levels have
exacerbated inflation risks, contributing to rising long-term
interest rates and raising estimates for neutral real interest
rates (r-star). This, together with the limited room for further
rate cuts, suggests that interest rates may remain elevated for
longer. Central banks are likely to continue being cautious and
data-dependent as they work to anchor inflation and inflation
expectations at target.
Domestic economic
developments and outlook
Anchoring lower
Domestic inflation has remained relatively subdued since falling
to the lower bound of the 3–6% target band in the second half
of 2024. Headline inflation averaged 3% in the 11 months since
October 2024, despite the recent uptick to 3.5% in July 2025,
before moderating slightly to 3.3% in August.
With Brent crude oil prices low and stable, and the rand
stronger, fuel prices declined for much of the period, pulling
headline inflation down. Food inflation was, until recently,
also contained, averaging 2.1% between October 2024 and
April 2025, supported by a bumper domestic harvest that led to
sharply lower grain prices.
Despite lower global food prices, meat and vegetable price
inflation has increased markedly since April 2025 due to supply
constraints related to foot-and-mouth disease and adverse
weather conditions. Encouragingly, supply conditions have
begun to improve, suggesting that these inflationary pressures
may be temporary (see Box 9).
Unlike the more volatile items (i.e. food and fuel), core inflation
remained stable around 3% during the review period. Wagesetting in the private sector consistent with productivity
growth, rand strength and easing inflation expectations have all
contributed to the moderation in underlying price pressures.


US
UK
Japan
Eurozone
Budget balances*
Budget balances
2010–19 average
* Shaded bars indicate forecasts
Source: Bloomberg
Percentage of GDP
-2

Contributions to headline inflation
Fuel
Food
Core
Electricity
Headline*
Percentage points
* Percentage change over 12 months
Sources: Stats SA and SARB
-4

Selected components of food inflation
Meat
Food and NAB inflation
Vegetables
Source: Stats SA
Percentage change over 12 months

OCTOBER 2025
With sustained low inflation and modest forecasts, the
Monetary Policy Committee (MPC) moved to lock in recent
disinflation gains, announcing at its July 2025 meeting a shift
in its preferred inflation objective to 3% from 4.5%. This aligns
South Africa’s long-term inflation rate with those of its key
trading partners and peers, and offers greater protection
to vulnerable groups, including the poor and those on fixed
incomes.7 The change mirrors the 2017 adjustment to the
midpoint of the band, which resulted in inflation and inflation
expectations stabilising closer to 4.5% until they were
temporarily dislodged by the post-pandemic inflation surge.
The MPC’s policy decisions are now guided by the 3%
objective, even though the official target band remains
unchanged. Inflation expectations, unit labour costs (ULCs)
and core inflation appear to be robust to typical inflation shocks
(see Box 1).
Looking ahead, headline inflation is projected to rise in the
short term, averaging 3.6% in 2026, before easing towards
the 3% objective by the end of the forecast period.8 These
projections are slightly higher than the July forecast, which
had headline inflation at 3.3% in both 2025 and 2026, and
declining to 3% in 2027. The upward revision mainly reflects
higher-than-expected electricity price inflation following the
recent price corrections by the National Energy Regulator of
South Africa (NERSA).9
Still-modest growth
The challenge to break out of the low-growth trajectory
remains. In the first half of 2025, real gross domestic product
(GDP) increased by 0.8% year on year following growth of
0.5% in 2024 and 0.8% in 2023. Over the past 10 years, growth
has averaged 0.8% while population growth was about 1.4%.
As a result, South Africa’s per capita GDP has declined at an
average annual rate of 0.6% over the past decade.
On a quarter-on-quarter basis, output growth has been
volatile. The economy expanded at a stronger-than-expected
0.8% in the second quarter of 2025 following a very subdued
0.1% increase in the first quarter. The volatility in the quarterly
growth rates reflects persistent structural weaknesses
that drag economic activity as well as swings in household
spending growth.
7 See C Loewald, R Steinbach and J Rakgalakane, ‘Less risk and
more reward: revising South Africa’s inflation target’, South African
Reserve Bank Working Paper Series No. WP/25/05, Pretoria: South
African Reserve Bank (SARB), May 2025; see National Treasury,
Macroeconomic policy: A review of trends and choices, Pretoria: National
Treasury, 2024; see also S Hall, ‘An optimal inflation rate for South
Africa’, Economic Change and Restructuring 58(43), 2025, pp 1–29.
8 Core inflation is forecast at 3.3% in both 2025 and 2026, declining
to 3% in 2027.
9 The National Energy Regulator of South Africa (NERSA) adjusted
electricity price increases upwards to 8.76% and 8.83% for 2026/27
and 2027/28 respectively. Originally, NERSA had announced tariff
increases of 5.36% and 6.19% over the respective periods.
-15
-10
-5

Unit labour costs
Real wages
Inflation
Productivity*
Wage inflation*
Source: SARB
Percentage points
* Percentage change over four quarters

Percentage change over four quarters
Targeted inflation forecast*
* The bands around the central projection show confidence intervals
of 10%, 30%, 50% and 70%.
3–6% inflation target band
Sources: Stats SA and SARB
Preferred objective

GDP per capita: BRICS
China
India
Russia
Brazil
South Africa
Source: IMF
Index: 2015 = 100

OCTOBER 2025
Broadly, economic activity remains hamstrung by logistical
inefficiencies in ports and rail, a regulatory environment that
impedes competitiveness, skills shortages, low investment
levels as well as challenges related to energy supply and cost.
Although energy availability has improved, safety margins
remain tight, with the energy availability factor averaging 62.6%
so far this year, well below the desired 75%, while the lingering
effects of the intensive load-shedding of recent years, including
depressed sentiment, continue to weigh on economic activity.10
The domestic economy is expected to grow by 1.2% this year,
rising to 1.9% by 2027, broadly in line with the estimated path
of potential output, forecast at 1.1% this year and rising to 1.7%
in 2027. Investment is projected to recover and strengthen as
reforms in key sectors – energy, logistics and water – advance
further, encouraging greater private sector participation
through initiatives such as embedded energy generation and
concessioning in rail and port infrastructures. Accelerated and
comprehensive implementation of the Operation Vulindlela
reforms could further enhance both potential and actual
GDP growth.
Overview of the policy stance
Since September 2024, the MPC has reduced the policy rate by
a cumulative 125 basis points, including 50 basis points of cuts
during the current review period. This has brought the policy rate
down to 7%, and the stance remains moderately restrictive. The
rate reductions were consistent with the policy path implied by
the Quarterly Projection Model (QPM).
The May and July headline inflation remained contained and
risks balanced, prompting the MPC to cut rates by 25 basis
points at each meeting.
Compared with the 4.5% baseline, the 3% baseline suggested
future scope for lower rates and further easing of the policy
stance, provided inflation expectations evolve in line with
model assumptions.
The lead-up to the September 2025 MPC meeting had
several developments that affected the inflation outlook.
NERSA announced large unanticipated additional increases in
electricity prices, with electricity price inflation now projected at
9.1% and 7.9% in 2026/27 and 2027/28 respectively from 8.1%
and 5.2% respectively in July. This contrasts with administered
price inflation excluding electricity of 3.8% and 2.7%
respectively over the same periods. Additionally, the strongerthan-expected economic growth in the second quarter
narrowed the negative output gap slightly over the forecast
horizon, implying somewhat less disinflationary pressure.
Downward pressure on the inflation forecast emanated from
the rand’s improved performance against the US dollar, with
an improved outlook and the continued moderation of inflation
10 See A Khoza, K Morema, M Mofokeng and M Tshenkeng,
‘Will GDP firmly lift from supply-side improvements or is the
economy scarred?’, South African Reserve Bank Economic
Note No. EN/2024/114, Pretoria: SARB, December 2024.


Potential GDP growth
Baseline
Permanent 1% economy
Operation Vulindlela reforms*
Sources: National Treasury and SARB
Percentage change
* The SARB assumes close to 80% of the impacts
calculated by National Treasury from the 2024 Medium
Term Budget Policy Statement.

Nominal policy rate
Source: SARB
Per cent

2019 2020 2021 2022 2023 2024 2025 2026 2027
Nominal policy rate with forecasts
Actual
May 2025: 4.5% baseline
May 2025: 3% scenario
Sep 2025
Source: SARB
Per cent

OCTOBER 2025
expectations. On balance, however, headline inflation was
forecast slightly higher compared with July.
The MPC opted to keep the policy rate unchanged at the
September meeting, allowing time to assess the transmission
of the cumulative 125 basis points policy easing to date,
monitor the evolution of inflation expectations, and evaluate
how inflation risks unfold. This decision aligned with the policy
rate path implied by the QPM, which indicated no cut in the
third quarter of this year.
Conclusion
Global growth remains resilient while inflation continues to
moderate. This has created room for countries with policy
space to ease rates further. However, the pace of rate
normalisation has varied, reflecting country-specific inflation
dynamics. Economies imposing tariffs may face stagflationary
pressures, while the tariffed economies are likely to experience
disinflationary adverse demand shocks. Although further rate
cuts are anticipated in several jurisdictions, terminal rates are
expected to remain above pre-pandemic levels, reflecting
structurally higher interest rates.
The SARB’s decision to lower its preferred inflation objective to
3% brings the country in line with international peers. Doubledigit increases in administered prices – against a realised
inflation rate of 4.4% in 2024 and an expected inflation rate
of 3.4% this year – highlight the dysfunction in the pricing
of these goods and services. Administered price increases
that bear little relation to the overall inflation rate undermine
the competitiveness of domestic producers. Comprehensive
sector-specific reforms are needed to improve efficiency in
administered pricing. Sustained and accelerated progress on
domestic structural reforms, alongside efforts to rebuild fiscal
and monetary policy space, will be critical to supporting longterm growth.


Inflation rate (per cent)

2025*
* Until the third quarter of 2025
Sources: BER and SARB
Proportion
Distribution of two-years-ahead business
inflation expectations
←Midpoint
3%
target
band →
lower
bound

2009 2011 2013 2015 2017 2019 2021 2023 2025
Electricity
Water
Fuel taxes
Headline
Sources: Stats SA and SARB
Index: Jan 2009 = 100
Headline and selected administered
components

OCTOBER 2025
Box 1 Stress-testing 3% inflation1
1 T Janse van Rensburg, J Rakgalakane and R Steinbach,
‘Stress testing the 3% inflation target’, South African
Reserve Bank Economic Note No. EN/2025/16, Pretoria:
South African Reserve Bank (SARB), September 2025.
2 Between the third quarter of 2017 (when the 4.5% inflation target
was announced) and the second quarter of 2025, headline inflation
averaged 4.7% with a standard deviation of 1.3%. If we assume that
the ratio of the standard deviation to inflation remains unchanged,
‘normal’ oscillation around the 3% inflation target should be around
0.9 percentage points which is rounded up to 1 percentage points
Therefore, for the inflation target to be robust, inflation should not
deviate by more than 1 percentage points from the 3% inflation target.
3 M Reid, A Foresto, R Steinbach and J Rakgalakane, ‘The
role of inflation expectations in the path to 3%: calibrating
the models and understanding behaviour’, South African
Reserve Bank Working Paper Series, forthcoming.
4 Sometimes these shocks (partially) neutralise each other, but it may
also result in ‘perfect storms’ that exacerbate the inflation outcomes.
5 We cannot test specific scenarios here as it is impossible to predict
the exact nature, size or direction of a combination of future shocks.
Each shock is based on its historical mean and variability, allowing
for both positive and negative shocks of varying magnitudes.
The Monetary Policy Committee announced at its July 2025 meeting
that future policy decisions would be guided by the objective to stabilise
inflation at 3%. Stress tests indicate that a 3% inflation objective is readily
achievable under normal inflationary shocks, without excessive reliance
on the policy rate.2 Typical one standard deviation shocks account for
roughly 70% of the observed fluctuations in South Africa’s headline
inflation.
Applying one standard deviation shocks individually to unit labour cost,
the exchange rate as well as oil, food, electricity and administered
prices shows a modest average impact in the first year of the shock.
Headline inflation remains within 1 percentage point around the target
while inflation expectations remain stable around 3% under each shock
scenario.
Spillovers to inflation expectations from one standard deviation
shocks are quite small, indicative of stable and well-anchored inflation
expectations. Indeed, decompositions of inflation expectations show
that they are predominantly driven by the forward-looking component
(proxied by the target) and less by the backward-looking component
(headline inflation).3
However, in real life, the economy is continually buffeted by shocks
of varying degrees and durations.4 Tests of target robustness thus
ought to account for these plausible constellations. To this end, a
range of possible outcomes is simulated in the Quarterly Projection
Model by randomly drawing shocks from statistical distributions.5
As with the simple one-standard deviation shocks, the distribution
of simulations shows that inflation will stay close to the 3%
objective, with around two-thirds of the outcomes falling between
1.8% and 4.2%. In the more extreme cases of correlated shocks
(a ‘perfect storm’ of shocks), inflation could rise above 7% or fall
below 0%.
-3
-2
-1

One standard
deviation range
Headline inflation
Source: SARB


Per cent of outcomes

Distributional impact of a combination of shocks
over the inflation forecast

Rand
Oil
Food
Unit labour cost
Electricity
Administered**
Impact range
3% target
One standard deviation around 3% target*
Impact on headline inflation: one-year
average response
Per cent
* Standard deviation corridor around the 3% target, proportionally adjusted for
the reduction in inflation from 4.5% to 3% and rounded to the nearest integer
** Excluding fuel and electricity
Source: SARB

Rand
Oil
Food
Electricity
Administered**
Impact range
3% target
One standard deviation around 3% target*
Per cent
* Standard deviation corridor around the 3% target, proportionally adjusted for
the reduction in inflation from 4.5% to 3% and rounded to the nearest integer
** Excluding fuel and electricity
Source: SARB
Impact on inflation expectations: one-year
average response

OCTOBER 2025


Responsiveness to inflation shocks
Core inflation
Unit labour costs
Sources: Stats SA and SARB
Regression coefficients
↑Less responsive to shocks

Inflation volatility
Headline
Core
Sources: Stats SA and SARB
Standard deviation*
* 24-month rolling standard deviation of month-on-month
percentage changes
Box 2 A more stable core?
1 See N Bandera, L Barnes, M Chavaz, S Tenreyro and L von dem
Berge, ‘Monetary policy in the face of supply shocks: the role of
inflation expectations’, a paper presented at the European Central
Bank (ECB) Forum on Central Banking, Frankfurt: ECB, June 2023.
2 To account for base effects-induced volatility, we exclude the
pandemic years of 2020 and 2021 as these were extreme outliers.
3 The volatility of headline inflation has also moderated appreciably over
the past 25 years, as the (implied) inflation target preferences of the
South African Reserve Bank (SARB) have changed. See L Kganyago,
‘From fragility to strength: The role of price stability’, a speech by the
SARB Governor to the National School of Government, August 2025.
4 The sensitivity of core inflation and ULC to shocks to headline inflation
is tested by evaluating whether these series revert to headline inflation
trends following an inflationary shock. See A Palazzi and W Simbanegavi,
‘Mind-second round effects! The effects of food and energy inflation on
core inflation in South Africa’, South African Reserve Bank Occasional
Bulletin of Economic Notes OBEN/23/01, Pretoria: SARB, June 2023. The
main departure from earlier work is to run a 40-quarter rolling window
regression to evaluate the sensitivity of core and ULC inflation to shocks
over time, with dummies for the global financial crisis (2009–10) and
COVID-19 (2020–21) periods. The ULC reversion model uses a lag length
of eight quarters to allow for a longer reversion time given wage rigidities.
5 See, for example, P Honohan and A Orphanides, ‘Monetary policy
in South Africa, 2007–21’, SA-TIED Working Paper No. 208, Pretoria:
Southern Africa – Towards Inclusive Economic Development
(SA-TIED), March 2022; see also SARB, ‘Box 1: Floating away?’,
Monetary Policy Review, Pretoria: SARB, October 2024.
Less sensitivity of core inflation to external inflation shocks increases the
odds of achieving a given inflation target rate. Mature monetary policy
frameworks, exemplified by inflation-targeting in advanced economies,
generally exhibit these attributes. Where sensitivity is low, the flexibility to
look through shocks is higher, enabling more stable policy rates.1
The volatility of unit labour cost (ULC) and core inflation has declined
over time. The standard deviation of year-on-year ULC and core inflation
averaged 2.2 and 1.6 percentage points respectively over the 2000–
09 period, but declined to 1.1 and 0.8 percentage points respectively
between 2010 and 2017. From 2018 to 2024, the standard deviation of
core inflation fell further to 0.4 percentage points, despite the multiple
inflationary shocks of this period.2, 3 Similarly, reversion tests confirm
that ULC and core inflation have become less sensitive to shocks to
headline inflation than they were a decade ago.4
The decline in the sensitivity of ULC and core inflation to exogenous
shocks reflects better anchoring of both wages and inflation
expectations.5 Firms may also have partly absorbed wage increases in
excess of productivity growth (perhaps reflecting greater product market
competition), which tempered the risks of wage-price spirals and thus
the sensitivity of ULC inflation (and, by extension, core inflation) to
exogenous shocks.

OCTOBER 2025
Box 3 Do slow-motion expectations matter?
1 See K Miyajima and J Yetman, ‘Assessing inflation expectations
anchoring for heterogenous agents: analysts, businesses and
trade unions’, Bank for International Settlements Working Papers
No. 759, Basel: Bank for International Settlements, November 2018.
In the Quarterly Projection Model, inflation expectations play a
central role in shaping the transition towards the preferred 3%
inflation objective. While the assumption of more forward-looking
expectations is broadly supported, this box investigates a scenario
where expectations adjust more slowly than in the baseline.1 Two
sub-scenarios are considered:
•
Sub-scenario 1 assumes that agents are more backward-looking,
placing a greater weight (50% vs 16% in the baseline) on past
inflation outcomes when forming their expectations.
•
Sub-scenario 2 builds on sub-scenario 1, but assumes a much
stronger influence of Bureau for Economic Research surveybased expectations on price-setting.
The modest deviations of inflation and growth from the baseline
indicate that the disinflation path towards the 3% objective is robust
to different assumptions about the inflation expectations formation
process.
Scenario results*
Variable
Sub-scenario

Inflation
expectations
Sub-scenario 1
0.5%
0.3%
Sub-scenario 2
0.5%
0.5%
Headline
inflation
Sub-scenario 1
0.1%
0.1%
Sub-scenario 2
0.2%
0.4%
Nominal
policy rate
Sub-scenario 1
0.1%
0.1%
Sub-scenario 2
0.2%
0.2%
Real GDP
growth
Sub-scenario 1
0.0%
0.0%
Sub-scenario 2
-0.2%
-0.1%
* Average percentage change from baseline
Source: SARB

OCTOBER 2025
Global economy:
resilient ... for now
The global economy was resilient in the first half of 2025,
but growth is expected to slow in the second half of the year
as the momentum from the front-loading of exports fades.
Policy uncertainty and weakening confidence, along with
pressure from debt-induced tightening in financial conditions,
are expected to keep activity modest over the medium term.
Inflation is projected to ease further and to stabilise at targets
by the end of 2026 in most economies, supported by cooling
labour markets. Central banks are expected to continue to
ease policy, but the pace and extent of rate cuts is likely to be
modest given limited policy space.
The global economy has proven resilient so far this year, despite
increased trade tensions and geopolitical conflicts in Eastern
Europe and the Middle East. Economic activity was supported
by robust global trade, which increased by 4% in the first half
of 2025 compared with the same period in 2024. Reflecting
this stronger-than-expected performance, global growth is
now projected at 3.2% for the year – an upward revision of
0.4 percentage points from the April forecast – broadly in line
with the 2024 outcome of 3.3%.11
Although economic activity has held up so far, medium-term
prospects are less clear. This uncertainty partly reflects the
distortions caused by the front-loading of exports ahead of tariff
implementation and the still-to-be-resolved trade tensions.
Trade imbalances are likely to keep tariffs in focus, which could
further disrupt supply chains and dampen both investment
and trade. Meanwhile, increased borrowing requirements and
elevated debt levels in major economies could drive long-term
interest rates even higher, tightening financial conditions. As
a result, medium-term global growth is expected to remain
modest or even weaken somewhat.12
The US economy expanded by 1.6% in the first half of 2025,
supported by strong investment and consumer spending.13
Although this marks a slowdown from the 2.3% growth
recorded in the same period of 2024, it nonetheless reflects
notable resilience given uncertainty in trade policy. Recent
labour market data, however, suggests some fragility. Growth
for the full year is projected at 2%, down from 2.8% in 2024.
Economic activity in the eurozone was stronger in the first half
of 2025 compared with the same period of last year, driven
by consumption and exports. However, tariffs on eurozone
exports to the US, along with intense competition from China,
11 Unless indicated otherwise, the global growth figures reported
in this section are from the IMF’s WEO October 2025.
12 The IMF sees growth of 3.1% in 2026 from 3.2% in 2025 while the
OECD projects growth to soften to 2.9% in 2026 from 3.2% in 2025.
13 After contracting by 0.6% in the first quarter of 2025 following
a sharp increase in imports ahead of new tariffs, the US
economy rebounded, increasing by a 3.8% quarter-onquarter, seasonally adjusted and annualised rate in the second
quarter of 2025. See US Bureau of Economic Analysis.

Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Source: Bloomberg Consensus
Percentage change

Evolution of 2025 global real GDP
growth forecast

1 000
1 200

Economic and trade policy uncertainty
Trade policy uncertainty
Economic policy uncertainty
Source: S R Baker, N Bloom and S J Davis, ‘Measuring economic
policy uncertainty’, The Quarterly Journal of Economics 131(4),
2016, pp 1593–1636.
Index

OCTOBER 2025
are expected to weigh on manufacturing. On the upside, the
proposed increases in spending on defence and infrastructure,
particularly in Germany, should support eurozone growth.
Overall, growth is expected to remain subdued at 1.2% in 2025
and 1.1% in 2026, from 0.9% in 2024, with significant variation
across member states.14
Other advanced economies, including the UK and Japan,
also performed well, but the momentum is unlikely to carry
as fundamentals remain unchanged. Real GDP is forecast
to grow by 1.3% in both 2025 and 2026 in the UK, while it
drags along in Japan, expanding at 1.1% and 0.6% over
the respective periods, supported primarily by a recovery in
household consumption.
Emerging markets were also resilient, with activity broadly
supported by the front-loading of exports, trade diversion
and firm domestic demand. Growth was led by the Asian
economies, which helped offset weaker performance in
regions such as Latin America. Emerging markets have seen
their share of global output increase to 44% in 2024, up from
36% in 2010 - making economic developments in these
economies an important driver of global growth.
China’s economy expanded by 5.3%, underpinned by strong
industrial output and firm export performance, even as
domestic demand was subdued. Growth of 4.8% is expected
this year, slowing to 4.2% in 2026, reflecting persistent
weakness in consumer demand, a prolonged downturn in the
property sector, a shrinking labour force as well as continued
trade tensions. By contrast, India is projected to grow by
6.6% this year and by 6.2% in 2026, supported by strong
investment and resilient domestic demand. Nonetheless, the
country remains vulnerable to sharply higher US tariffs, which
could dampen demand. In Latin America, Brazil and Mexico
are expected to slow, weighed down by tighter financial
conditions and trade tensions with the US.15 Meanwhile,
growth in sub-Saharan Africa is projected to remain steady at
4.1% in 2025, rising to 4.4% in 2026, supported by improved
commodity prices and easing inflation. At a projected 3.9%
this year, growth remains strong in Nigeria, while it is lethargic
(1.1%) in the region’s largest economy, South Africa.
Overall, the outlook for global growth remains uncertain, with
risks skewed to the downside. Persistent policy unpredictability
is likely to dampen confidence and limit activity. Tariff reversals
and heightened geopolitical tensions could further disrupt
supply chains and weaken global trade. Similarly, rising
fiscal deficits and debt levels may further increase long-term
interest rates, tightening global financial conditions. While less
probable, global growth could exceed current projections
14 Among the major economies in the region, Spain is expected to
outperform, growing by 2.9% in 2025, while Germany, France and
Italy are projected to grow by 0.2%, 0.7% and 0.5% respectively.
15 The Brazilian economy is projected to slow to 2.4% this year
from 3.4% in 2024, and to ease further to 1.9% in 2026.
Economic activity in Mexico is forecast to ease to 1% this
year from 1.4% in 2024 before rising to 1.5% in 2026.


2010–19

2010–19

2010–19

US
UK
Eurozone
Japan
Real GDP growth projections for advanced
economies*
Source: IMF
Percentage change
* Dotted lines indicate forecasts

2010–19

2010–19

2010–19

2010–19

2010–19

India
China
Brazil
Russia
South Africa
Real GDP growth projections for emerging
markets*
Source: IMF
Percentage change
* Dotted lines indicate forecasts
-3
-2
-1

Global real GDP projections*
IMF
OECD
Bloomberg Consensus
Sources: Bloomberg Consensus, IMF and OECD
Percentage change
* Dotted lines indicate forecasts

OCTOBER 2025
if trade negotiations result in significantly lower tariffs or if
productivity gains from artificial intelligence are realised more
rapidly and spread more widely.
Inflation – a gradual return to targets
Global inflation has continued to moderate. However, outcomes
have varied across major advanced economies: falling close
to target in the eurozone and easing further in Japan while
reaccelerating in the US and UK. Core inflation has been
stubborn above target, driven by firm services prices and
strong wage growth. Goods price inflation, which was muted
for much of the past 18 months, has begun trending higher
and remains vulnerable to potential supply-chain disruptions
arising from trade tensions (see Box 4). Nevertheless, inflation
is expected to return to targets by the second half of 2026,
except in the US, where convergence is expected only
from 2027.
Disinflation has progressed faster in emerging markets, with
most now back at targets. This trend was supported by
currency appreciation against the US dollar as well as softer
energy and food price increases – large-weight components in
the inflation baskets of most emerging economies.
Inflation is expected to rise in the countries imposing tariffs,
although the timing and magnitude will depend on the extent
of import front-loading and the speed with which firms pass
higher costs on to consumers.16 In contrast, countries subject
to tariffs may experience a disinflationary shock driven by the
negative income effects associated with reduced trade flows.
Trade diversion could also result in further disinflationary
pressures in the rest of the world, with China likely to export
deflation.17
Early evidence suggests that tariffs are beginning to affect
US prices, with modest increases observed in tariff-exposed
goods such as furnishings and recreational items.
Typically, tariffs result in a one-off upward shift in the price
level. Therefore, the current tariffs are expected to temporarily
raise US headline inflation, with the inflationary impulse fading
by the second half of 2026. However, the current tariff regime
remains uncertain and is being implemented in stages due
to protracted trade negotiations as well as policy reversals,
increasing the risk of second-round effects, more so in an
environment characterised by elevated short-term household
inflation expectations. Nonetheless, US inflation is projected to
return to the 2% target by late 2027.
In many advanced economies, wage growth remains at levels
inconsistent with the 2% inflation target, which has contributed
16 See E Kohlscheen, P Rungcharoenkitkul, D Xia and F Zampolli,
‘Macroeconomic impact of tariffs and policy uncertainty’,
Bank for International Settlements Bulletin No. 110, Basel:
Bank for International Settlements, August 2025.
17 SARB, ‘Box 4: Will Chinese growth sink the global economy
and commodity prices?’, Monetary Policy Review (MPR),
Pretoria: SARB, April 2024.
-4

Goods inflation in advanced economies
UK
US
Eurozone
Sources: Bureau of Labor Statistics, Eurostat and Office for National
Statistics
Percentage change over 12 months
Target

Headline inflation in advanced economies
and emerging markets
Emerging markets
Advanced economies
Sources: Haver and SARB
Percentage change over 12 months

Wages in advanced economies
UK
US
Eurozone
Sources: Atlanta Fed, European Central Bank and Indeed Hiring Lab
Percentage change over 12 months

OCTOBER 2025
to stickiness in inflation. At 3.8% in August 2025, UK inflation
is elevated and higher than in comparable economies.
Inflation is expected to peak towards the end of 2025 before
declining towards the 2% target in 2026.18 Similar dynamics
have also been observed in Japan where, although inflation
has moderated, it remains above the 2% target. Elevated food
price increases have contributed to this persistence, raising
concerns about potential second-round effects. In contrast,
in the eurozone, inflation has steadily declined and stabilised
around the 2% target. This moderation has been supported by
easing wage pressures, a stronger currency and lower energy
price increases.
Except for the large Latin American economies, disinflation has
continued across emerging markets, although the pace has
slowed due to rising food price pressures in some countries,
including South Africa. China continues to face deflationary
pressures, reflecting weak consumer demand and intense
price competition.
Monetary policy outlook – caution
ahead
Despite uncertainty remaining elevated, central banks are
expected to cut rates further. However, the extent of easing
is likely to be limited, as inflation risks remain high and r-star
has likely risen. Given the unpredictable global environment
and other uncertainties, a cautious and data-driven approach
remains important.
In the US, market consensus anticipates a further 125 basis
points reduction in the policy rate by the end of 2026, driven
by concerns over labour market weakness. Nonetheless,
persistent high inflation may temper these expectations.
The BoE is expected to pursue a gradual easing path given
ongoing inflationary pressures, with rates projected to reach
a terminal level of 3.5% by the end of 2026. In the eurozone,
where inflation is at target, the ECB is expected to keep rates
unchanged through 2026. In contrast, the BoJ is expected to
raise rates further given that policy is currently stimulatory.
In emerging markets, the pace and extent of policy easing
is also expected to vary. Broadly, modest further rate cuts
are anticipated, except in Türkiye, Russia, and Brazil, where
inflation remains high. Meanwhile, persistent deflationary
pressures may prompt the People’s Bank of China to introduce
additional policy measures to support demand.
Conclusion
Global growth has been resilient, supported by front-loading
activity ahead of tariff implementation. The inflationary effects
of the tariffs have not fully reflected in the data yet, and are
expected to be concentrated in the US. Inflation is projected to
gradually return to target levels from the second half of 2026,
creating scope for further policy easing. However, given the
elevated uncertainty, central banks are expected to remain
cautious and data-dependent in their decision-making.
18 According to Bloomberg Consensus.

US
UK
Eurozone
Japan
Canada
Expected policy rate changes
in advanced economies
Expected policy rate change by end of 2025
Expected policy rate change in 2026
Source: Bloomberg Consensus
Percentage points

Brazil
Mexico
South Africa
India
Poland
Sources: Bloomberg Consensus and central banks
Per cent
Forecast
Policy rate projections for emerging markets

OCTOBER 2025

Brazil
Mexico
South Africa
India
Poland
Sources: Bloomberg Consensus and central banks
Per cent
Forecast
Policy rate projections for emerging markets
Box 4 Breaking the chain?
Globalisation and the integration of supply chains have contributed
to higher productivity, lower inflation and rising incomes, especially in
emerging markets.1, 2 However, rising protectionism and higher tariffs
threaten to break global supply chains.3, 4 Significant changes in supplychain structures could reduce global trade by up to 18% and real gross
domestic product (GDP) by as much as 5%, potentially reversing many
of the gains achieved through globalisation.5
Supply chains came under considerable strain following the COVID-19
pandemic and the war in Ukraine, contributing to the post-pandemic
inflation surge. In response, firms and governments invested in
reshoring, nearshoring and friendshoring to reduce vulnerabilities.
The recent trade disruptions may again prompt a restructuring of
supply chains, leading to more fragmented global trade. Changes to
supply-chain structures, particularly for complex goods, are likely to be
slow and more costly.6 Producer prices are expected to be impacted
first, with these cost increases likely to be passed on to consumers,
especially if market competition weakens.7
South Africa is among the countries subject to high US tariffs. Key
export-dependent sectors such as agriculture and the automotive
industry face viability challenges as a result. For certain specialised
value chains, such as the automotive chain, high tariffs could weaken
South Africa’s role in the relevant global supply chains and negatively
affect economic growth. Accelerating structural reforms could boost
productivity, mitigating the loss of export competitiveness. Efforts
should also focus on diversifying export markets and strengthening
existing trade partnerships, including full implementation of the African
Continental Free Trade Area agreement.
Supply-chain disruptions pose challenges for central banks too, as
they can fuel expectations of persistent high inflation. During the
COVID-19 pandemic, supply-chain shocks played a major role in
driving up global inflation and inflation expectations.8 While the price
effects of one-off tariffs may be short-lived, ongoing trade uncertainty
as well as the breakdown of long-standing trade relationships and
supply chains could lead to second-round inflationary effects and
lasting changes in how prices are set.
1 See C Criscuolo and J Timmis, ‘The relationship between global value
chains and productivity’, International Productivity Monitor, Ottawa: Centre
for the Study of Living Standards, 2017, pp 61–83. See also Organisation
for Economic Co-operation and Development (OECD), OECD Supply Chain
Resilience Review, Paris: OECD, 2025.
2 J Baldwin and B Yan, ‘Global value chains and the productivity of Canadian
manufacturing firms’, Economic Analysis Research Paper Series, Ottawa:
Statistics Canada, 2014.
3 The United States (US) National Association of Manufacturers (NAM)
Manufacturer’s Outlook Survey for the second quarter of 2025 revealed that
40% of the respondents indicated supply-chain challenges as concerning,
compared to 26% of the respondents the same time a year ago.
4 See G M Grossman, E Helpman and S J Redding, ‘When tariffs disrupt
global value chains’, American Economic Review 114(4), 2024,
pp 988–1029. They found that, during President Donald Trump’s first term
(2017–21), higher tariffs led US companies to either renegotiate trade
agreements or move part of their supply chains from abroad.
5 OECD, OECD Supply Chain Resilience Review, Paris: OECD, 2025.
6 See Morgan Stanley Research, Multipolar world: supply chain strain,
New York: Morgan Stanley, 2025.
7 M G Attinasi, M Balatti, M Mancini and L Metelli, ‘Supply chain disruptions
and the effects on the global economy’, European Central Bank Economic
Bulletin 8/2021, Frankfurt: European Central Bank, December 2021.
8 D Rees and P Rungcharoenkitkul, ‘Bottlenecks: causes and
macroeconomic implications’, Bank for International Settlements Bulletin
No. 48, Basel: Bank for International Settlements, November 2021.

Global value chain-related trade
Source: World Bank
US$ trillions

US supply chain pressure index
Source: US National Association of Manufacturers
Index

OCTOBER 2025
Global financial markets:
an uneasy calm
Financial markets have calmed significantly since the acute
unpredictability caused by the US ‘Liberation Day’ tariffs in
April 2025, with volatility indicators now below their long-term
averages. US bond yields initially rose due to trade policy
uncertainty but later eased as growth slowed and expectations of
Fed rate cuts increased. Global equities rallied, buoyed by strong
corporate earnings and expectations of policy easing by the Fed,
while the paring of US dollar-denominated portfolios boosted
emerging market assets and precious commodities prices. Higher
net debt issuance, amid already elevated debt levels, contributed
to rising long-term yields across most advanced economies.
South African assets benefitted from these global trends, with
bond yields declining and the rand strengthening. The MPC’s
announcement of a lower preferred inflation objective, persistent
low domestic inflation and the approval of Budget 2025 enhanced
the appeal of domestic assets.
Risk-on shift amid uncertainty
Since the last MPR, financial market outcomes have been
shaped by trade disruptions and growing fiscal concerns as
well as changing expectations around monetary policy and
unexpectedly strong corporate performance in the US. Market
volatility rose sharply in April 2025 following the announcement
of broad-based US tariffs, amid fears of escalating trade
tensions. Barring a spike in the second week of October 2025,
conditions have generally stabilised, as most countries refrained
from retaliatory measures and the US partially reversed some
import duties. Volatility indicators are currently below their
long-term averages. However, recent volatility demonstrates
that markets remain sensitive to trade policy uncertainty, while
concerns about the sustainability of US fiscal policy persist.19
In bond markets, the US 10-year Treasury yield fluctuated
within a broad range of 4% to 4.7% and is currently close to
April 2025 lows. The 30-year yield rose above 5% in May –
its highest level since late 2023 – as investors sought greater
compensation for fiscal and inflation risks. However, softer
labour market data and concerns about economic growth
have increased expectations of further monetary policy easing
by the Fed. As a result, and despite some pull-back in the
long-bond yields, the US yield curve has steepened since the
previous MPR.
A similar trend has been observed in Europe and the UK,
where long-term yields have increased due to large borrowing
needs, slower growth and reduced prospects for further rate
cuts. In contrast, emerging market bonds have performed
better, with yields declining across a wide range of countries.
19 See, for instance, S Ajovalasit, A Consiglio and S Zenios, ‘How
much of a threat to US debt sustainability is Trump’s One Big
Beautiful Bill Act?,’ Bruegel Analysis, 22 September 2025.
-15
-10
-5

South Africa
Indonesia
Brazil
Mexico
Chile
Poland
India
Basis points change
10-year bond yields
Since Apr 2025
Year-to-date
Sources: Bloomberg and SARB

Oct
Dec
Feb
Apr
Jun
Aug
Oct
Basis points
Five-year versus 30-year bond yields
UK
US
Germany
Sources: Bloomberg and SARB

G10 FX
Emerging
market FX
VIX
MOVE
Volatility measures
2000–19 average
3 April 2025
Current
Sources: Bloomberg and SARB
Index

OCTOBER 2025
-15
-10
-5

Apr
May
Jun
Jul
Aug
Sep
Oct
Cumulative per cent return
Equity market performance
JSE All-Share
CSI 300
S&P 500
FTSE 100
Stoxx 600
Source: Bloomberg

Jan
Feb Mar
Apr
May
Jun
Jul
Aug Sep
Oct
Nominal effective exchange rates
Brazil
Mexico
Colombia
Poland
South Africa
Thailand
India
Sources: BIS and SARB
Index: Jan 2025 = 100

-400
-200

2000 2003 2006 2009 2012 2015 2018 2021 2024
Basis points
Equity risk premium
Sources: Bloomberg and SARB
This improvement reflects a more favourable risk environment
and relatively better inflation outcomes.
Meanwhile, equity markets have continued to rise steadily
following their recovery from the sharp sell-off in April.
Developed market stocks have posted double-digit gains
year-to-date, led by strong performance from major US
technology firms. US indices, including the S&P 500, Nasdaq
and Dow Jones, reached record highs in early October, fuelled
by renewed expectations of monetary policy easing and
resilient corporate earnings. In Europe and Japan, equities
also benefitted from improved investor sentiment, although
sectoral performance remained uneven. However, equity
valuations appear stretched, raising risk of a market correction
if adverse shocks occur. The brief October sell-off highlighted
how easily trade tensions can quickly disrupt the momentum
underpinning recent market gains.
US dollar loses its shine
Since April 2025, emerging markets have benefitted from
stronger commodity prices and a weaker US dollar, which
have eased financial pressures and improved returns. Investor
sentiment was further supported by signs of stabilisation
in China and a shift in capital flows away from overvalued
developed markets towards underrepresented emerging
market assets. These developments have led to broader
participation across regions and sectors.
The US dollar weakened in seven of the nine months leading
up to September 2025, and showed modest strengthening
into October. Despite ongoing uncertainty, most advanced
and emerging market currencies have appreciated against
the dollar (see Box 5). For some emerging markets, this has
resulted in gains on a nominal effective exchange rate basis –
a favourable development for economies that are particularly
sensitive to imported inflation.
Meanwhile, the gold price has continued to rise, reaching a
new high above US$4 000 per ounce in October 2025. In
addition to gold being considered as a safe-haven asset, the
increase in the gold price may also reflect investor concerns
about elevated equity market valuations.
Cycle still asynchronous
During the review period, most major central banks, except the
BoJ, reduced policy rates. Although US inflation remains above
target, markets are pricing in an additional 50 basis points of
easing for the remainder of the year. In the UK, expectations
for further rate cuts have diminished since the June cut, as
inflation remains persistent, while no further easing by the ECB
is anticipated this year. In emerging markets, investors expect
the easing cycle to continue into 2026, although the outlook
varies across regions. Latin America retains substantial scope

OCTOBER 2025

South African bond yield curve
Apr 2025
Current
Sources: Bloomberg and SARB
Per cent
-6
-4
-2

Jan
Feb Mar
Apr
May
Jun
Jul
Aug Sep
Oct
US$/R
EMFX
Sources: Bloomberg, JP Morgan and SARB

Cumulative per cent return
Emerging market currencies:
year-to-date performance
for further rate cuts, while in Asia forward curves suggest that
most central banks are nearing the end of their easing cycles,
reflecting more moderate prior tightening.
South African financial
market developments
South African financial markets shared in the broader
global upswing, supported by favourable international yield
conditions and distinct domestic factors. Government bonds
have rallied strongly from May 2025 onwards, with the 10year yield declining from above 10% to around 9.1% by early
October – its lowest level in nearly four years. Local drivers,
particularly the MPC’s signal and subsequent announcement
of a preferred inflation anchor at 3% as well as sustained low
inflation, contributed to the rally (see Box 6). Short-term rates
declined in response to successive interest rate cuts, while
anchored inflation expectations and robust foreign demand
supported the broader curve. Non-residents’ purchases of
government bonds exceeded R90 billion on a year-to-date
basis as of September 2025.
The JSE All-Share Index recorded seven consecutive
monthly gains through September, rising by over 30% yearto-date. Precious-metal mining stocks were the primary
drivers of this performance, benefitting from higher gold and
platinum prices. In contrast, domestically oriented stocks –
particularly retailers – underperformed, reflecting subdued
local economic conditions.
The rand experienced a notable recovery following a volatile
first half of the year. It came under significant pressure
in April 2025, weakening to above R19.50 to the US dollar
due to US tariff announcements and domestic political
uncertainty. However, the local currency rebounded as global
risk sentiment improved. The rand rallied in early October,
briefly strengthening to below R17.20 to the US dollar – its
firmest level since late 2024. Rand volatility has also declined
significantly. These developments point to improved investor
sentiment towards South African assets, despite ongoing
structural economic challenges. Nonetheless, given the weak
underlying fundamentals, the rand remains vulnerable to shifts
in global risk appetite.
Market expectations, as reflected in forward rate agreements
(FRAs), indicate that no further policy easing is anticipated for
the remainder of this year. Rate cuts are expected to resume
in 2026.


1x4
3x6
6x9
9x12
12x15
FRA less three-month Jibar
Source: Bloomberg
Basis points

OCTOBER 2025
Box 5 Still risk free?
The United States (US) dollar has declined steadily and steeply, and is
now at its lowest level since 2022.
The DXY index, which tracks the dollar against other major currencies,
surged to 109.95 in January this year, up from 100.48 in
September 2024, following President Donald Trump’s re-election amid
expectations for business-friendly policies. But since then, the dollar
has lost momentum, and by early September 2025, the DXY index had
dropped to 97.45 – a nearly 10% fall.1
1 The real effective exchange rate also declined alongside the
DXY index, with losses of approximately 7%. However, both are
currently trending above their long-term averages (since 2010).
2 See H S Shin, P Wooldridge and D Xia, ‘US dollar’s slide in April
2025: the role of FX hedging’, Bank for International Settlements
Bulletin No 105, Basel: Bank for International Settlements June 2025.
European currencies have gained the most from the dollar’s slide. The
euro started the year at US$1.04 and climbed to over US$1.18 by July
helped by a slightly better growth outlook and fewer expected further
rate cuts from the European Central Bank. By September, the euro
was holding steady around US$1.17. The trade-weighted dollar index
also fell, showing that the decline is broad-based. Emerging market
currencies have also seen marked appreciations over the review period.
US tariffs, policy reversals and lingering uncertainty have rattled
markets and investor confidence, resulting in reduced demand for the
US dollar. With the uncertainty mostly concentrated in the US, many
investors have diversified out of US assets or hedged against their dollar
exposures.2 Reduced demand for the US dollar also reflects investors’
expectations of a narrowing US growth gap vis-à-vis the eurozone and
other advanced economies. Expectations for rate cuts by the Federal
Reserve have added pressure on the US dollar.
The outlook for the US dollar will also depend on the size and pace
of future rate cuts. Unexpected additional slowdown in US economic
growth or trade policy disruptions could weaken it further. However, the
depth of US financial markets and the strength of American companies
remain important sources of support for the currency.

Jun
Aug
Oct
Dec
Feb
Apr
Jun
Aug
Oct
US dollar index
Source: Bloomberg
Index

OCTOBER 2025
Box 6 All fall down
The term premium, which captures the extra yield that investors demand
for holding South Africa’s 10-year government bond as opposed to rolling
over short-term instruments, has been declining since April 2025. This
stands in sharp contrast to some major economies, where term
premiums have been rising.1, 2
The main reason for this decline is a more positive outlook on inflation,
especially before the July 2025 Monetary Policy Committee (MPC)
meeting. Since the July MPC meeting, the yield has fallen by more than
20 basis points. Most of the decline was due to a lower term premium,
particularly the part that reflects inflation risk.3
Break-even rates, which show market expectations for inflation, have
declined by more than 100 basis points since the last Monetary Policy
Review.4 Breaking these rates down into the inflation risk premium
component – estimated from the nominal and real term premium – and
an inflation expectations component shows that the latter has declined
by around 20 basis points since April 2025. Declines in break-even rates
reflect multiple drivers, including shifts in risk premiums and increased
liquidity in bond markets. The current decline signals that investors
believe future inflation will be lower.
Overall, the decline in long-term bond yields and inflation expectations
suggests that markets see the 3% inflation objective as realistic and
believe that it will help keep inflation steady. Further gains are likely to
emerge from the formal adjustment of the inflation target.5
1 The term premium on the 10-year United States (US) bond has
increased by more than 40 basis points since April 2025 to 0.74%
in August. See Federal Reserve Bank of New York, Treasury Term
Premia, New York: Federal Reserve Bank of New York, 2025.
2 See L Soobyah and D Steenkamp, ‘Term premium and rate
expectation estimates from the South African yield curve’, South
African Reserve Bank Working Paper Series No. WP/20/03,
June 2020. The real term premium is estimated similarly
using inflation-linked bonds. The inflation risk premium is the
spread between the nominal and real term premium.
3 The inflation risk premium is ordinarily positive as investors seek
higher nominal yields to offset potential inflation risks. However, a
negative inflation risk premium is not uncommon (see, for instance,
G Camba-Mendez and T Werner, ‘The inflation risk premium in the
post-Lehman period’, European Central Bank Working Paper No.
2033, Frankfurt: European Central Bank, March 2017 as well as B
Feunou and Z Tarshi, ‘Deriving longer-term inflation expectations
and inflation risk premium measures for Canada’, Bank of Canada
Staff Discussion Paper 2024–9, Ottawa: Bank of Canada, July
2024). The recent episode of a negative inflation risk premium likely
reflects both subdued inflation and reduced inflation volatility.
4 Break-even inflation rates are the spread between nominal and
inflation-linked bond yields, and are comprised of an inflation
risk premium and an inflation expectations component.
5 Hall (2025) highlights the benefits of a lower inflation target and that
for South Africa this should include 2% in its range; see S G Hall,
‘An optimal inflation rate for South Africa’, Economic Change and
Restructuring 58(43), 2025, pp 2–29. Burger (2025) estimates a
Markov-switching regime model and finds that a 3% inflation target for
South Africa would lower inflation volatility, reduce nominal exchange
rate risk and support economic growth; see P Burger, ‘Twenty-five
years of inflation-targeting in South Africa’, UNU-WIDER Working Paper,
Helsinki: UNU-WIDER, June 2025. Kima and Lesame (2025) find that a
lower target in South Africa would lead to growth in output; see R Kima
and K Lesame, ‘Macroeconomic effects of lowering South Africa’s
inflation target: an SVAR analysis’, a paper presented at the Economic
Research Southern Africa conference titled ‘Back to Inflation’, Pretoria:
UNU-WIDER and National Treasury of South Africa, 8–9 May 2025.


5yr
10yr
20yr
Change in break-even inflation rates
Day before 3% announcement
Day after 3% announcement
Since Apr 2025
Source: Bloomberg
Basis points
-2

Real term premium
Nominal term premium
Inflation risk premium
Per cent
Sources: Bloomberg and SARB
Term premiums embedded in the 10-year
bond yield
-2

Inflation expectations
Break-evens
Inflation risk premium
Per cent
Sources: Bloomberg and SARB
Decomposition of the 10-year break-even
inflation rate

OCTOBER 2025
Real economy: still hamstrung
The domestic economy expanded at a relatively fast pace of
0.8% in the second quarter of 2025 – a marked improvement
on the 0.1% growth recorded in the first quarter. Household
consumption expenditure was the primary driver of this growth,
with support from inventories and government spending.
By contrast, investment again detracted from growth, having
registered contractions in seven of the past eight quarters.20
The sustained decline in investment reflects enduring structural
constraints that depress confidence and undermine long-term
potential economic growth. Near-term growth rates of 0.4%
per quarter are projected for the third and fourth quarters of
this year, bringing the annual rate to 1.2%. Growth rises to 1.9%
by 2027.
Recent economic developments
South Africa’s economy grew by 0.8% year on year in the
first half of 2025, reflecting modest momentum despite a
challenging global and domestic environment. High-frequency
data suggests that the gains achieved in the second quarter
will likely carry through into the third quarter, but a ‘lift-off’ is not
anticipated. While electricity supply has improved significantly,
both actual and potential growth continues to underperform,
highlighting the influence of other structural bottlenecks, along
with cyclical impediments, that weigh on economic activity and
overall performance.21
At the broad sectoral level, the tertiary sector underpinned
economic growth in the first half of 2025, driven by robust
activity in the financial services and trade sectors which were
partly buoyed by low inflation and interest rates.22 In contrast,
the secondary sector was a drag on growth primarily due to
continued underperformance of the manufacturing sector.
The primary sector added to growth despite a contraction in
mining. Activity in the agricultural sector was supported by the
animal and horticulture subsectors despite field crop deliveries
declining due to heavy rains.
On a quarter-on-quarter basis, performance by the mining and
manufacturing sectors was volatile; output contracted in the
first quarter mainly on cyclical factors before rebounding in the
second quarter. Looking ahead, mining is expected to benefit
from firmer commodity export prices and the subsidence of
cyclical shocks, while agriculture should be buoyed by the shift
of harvests from the second quarter to the third quarter of this
20 Investment by private enterprises contracted in five of the eight quarters.
21 Cyclical factors such as excessive rains and labour unrest impacted
mining activity and delayed agricultural harvests while reducing maize
quality. The foot-and-mouth disease outbreak affected livestock
slaughter rates, but its impact on sectoral output is less clear. Structural
bottlenecks include investment inefficiencies, a prohibitive regulatory
environment, logistical challenges as well as higher long-term borrowing
costs. See T Janse van Rensburg, A van Niekerk and R Ehlers, ‘What
is holding back investment in South Africa?’, South African Reserve
Bank Economic Note No. EN/2025/13, Pretoria: SARB, 2025.
22 The financial and trade sectors added 0.8 and 0.3 percentage points
respectively to growth in the first half of 2025.
-3
-2
-1

Q1
Q2
Q3
Q4
Q1
Q2
Q3
Contributions to real GDP growth*
Household consumption
Gross fixed capital formation
Government consumption
Inventories
Net exports
Residual
GDP**
* Dotted line and shaded bar indicate forecasts
** Percentage change over one quarter
Sources: Stats SA and SARB
Percentage points

Real GDP breakdown
Services*
Industry**
GDP
Source: Stats SA
Index: 2019 = 100
Includes trade, transport, finance, government and personal
services
** Includes agriculture, mining, manufacturing, electricity and
construction
*

Jan
Mar May
Jul
Sep
Nov
Jan
Mar May
Jul
High-frequency data
Retail trade
Mining
Motor trade
Manufacturing
Wholesale trade
Source: Stats SA
Index: 2019 = 100

OCTOBER 2025


Employment and real GDP growth
Employment (QES)
GDP
Source: Stats SA
Percentage change over one quarter


Real GDP and investment
GDP
Investment (right-hand scale)
Source: Stats SA
Percentage change
Percentage of GDP


Real compensation of employees
Source: Stats SA
Percentage change over four quarters
year as well as the subsidence of foot-and-mouth disease. The
tertiary sector should continue to receive support from low
inflation and interest rates.
A prolonged period of low economic growth, skills mismatches
and other entrenched structural factors have resulted in
persistent high unemployment in South Africa.23 Over the
past decade, employment grew by 0.7% per annum while the
labour force increased at an average rate of 2.1% per year,
resulting in rising long-term unemployment and elevated youth
unemployment which reached 46.1% in the second quarter
of this year. The labour market remains fragile, as reflected in
persistent job-shedding since mid-2023.
Labour market outcomes map directly into employee earnings
and feed through into real disposable income growth and
ultimately household spending. Despite weak employment
outcomes, real total compensation of employees increased by
1% in the first half of this year, benefitting from wage growth of
3.2% along with subdued inflation.
Household spending registered a solid 3% increase in the first
six months of 2025 on a year on year basis, and underpinned
output growth. Spending benefitted from growth in employee
earnings, low inflation and interest rates as well as the twopot retirement withdrawals. Declining debt-service cost,
along with the rebound in consumer confidence from its
lowest point in almost two years in the first quarter of 2025,
also supported real consumption spending by households.
Turning to capital formation, the trend of declining investment
persisted during the period under review as gross fixed capital
formation (GFCF) contracted by 3% year on year between
January and June 2025, with both the private and the public
sectors contributing to the decline.24 All asset classes, except
transfer costs, reflected a contraction, with spending on
residential buildings dropping sharply.25 As a share of GDP,
investment declined precipitously from 20% in 2008 to around
14% by 2024. Persistent energy and infrastructure failures,
policy uncertainty as well as muted economic growth, coupled
with governance issues like corruption and political instability,
have slowed private sector investment.26
23 These include low labour utilisation, structural barriers (e.g. high
costs of job creation and rigid labour regulations), school-towork transition and ineffective labour market institutions. See C
Loewald, K Makrelov and A Wörgötter, ‘Addressing low labour
utilisation in South Africa’, South African Reserve Bank Working
Paper Series, No. WP/21/09, Pretoria: SARB, June 2021.
24 Contractions of 1.5% and 1.4% were recorded in the first and second
quarters of this year respectively.
25 Residential buildings account for 13.2% of the total and recorded a drop
of 10.7%, while machinery and equipment – the largest component
(33.8%) – contracted by 2.8%. Transfer costs (1.9%) increased by 3.9%.
26 See L Fraser, ‘South Africa’s plan to stop its biggest cities from
collapsing’, BusinessTech, 18 September 2025.

OCTOBER 2025
Overall, domestic economic activity remains subdued,
indicating the presence of forces that continue to drag it. This
is despite improvements in energy supply and, to a lesser
extent, logistical performance. The economy is expected to
expand at a modest pace of 0.4% each quarter in the second
half of this year.
Growth outlook
The SARB’s baseline forecast anticipates a gradual pickup
in economic activity over the medium term, but the pace has
been scaled back compared with the previous MPR. Growth
rates of 1.2% in 2025 rising to 1.9% by 2027 are projected,
partly enabled by the expected improvement in the economy’s
productive capacity, as seen in potential growth that increases
from 1.1% this year to 1.7% by 2027.27 The slightly lower
trajectory for both real GDP and potential growth mostly
reflects the lower investment profile relative to the April MPR.
With household consumption accounting for nearly two-thirds
of gross domestic expenditure, growth in South Africa can be
characterised as ‘consumption-led’. Household consumption
spending is expected to remain resilient, benefitting from
low inflation and interest rates as well as improvements in
real disposable income. Real disposable income is projected
to increase at an average rate of 1.7% per annum over the
next two years, driven by rising wage income. The two-pot
retirement withdrawals are also expected to provide some
support, even as their impact is expected to fade. Expected
further interest rate cuts should improve credit affordability
while lowering debt-service costs, further boosting households’
real disposable income. Overall, real household spending is
projected to rise by 2.6% in 2025 before softening to 1.5% in
2026 and 1.8% in 2027.
After two consecutive years of disappointing performance,
GFCF is projected to contribute to growth from 2026.28
Investment should benefit from the recovery in government
capital spending, which is seen rebounding to 2.5% per
year in both 2026 and 2027 from a projected contraction of
3% this year. This recovery is expected to be underpinned
by the R1 trillion in capital spending over the Medium Term
Expenditure Framework announced in Budget 2025. GFCF
should also benefit from strengthening GDP growth as well
as pent-up investment demand. Expected low interest rates
as well as improved confidence stemming from Operation
Vulindlela reforms in the network industries should further
boost investment demand while embedded generation should
provide additional impetus. 29, 30
27 In the previous MPR, growth of 1.7% was projected for 2025,
rising to 2% in 2027; potential growth was forecast to average
1.4% in 2025, increasing to 2% in 2027.
28 Gross fixed capital formation (GFCF) is expected to expand by 2.7%
and 2.4% in 2026 and 2027 respectively. This follows an expected
contraction of 1.5% this year and a decline of 3.9% in 2024.
29 See K Khumalo, ‘Transnet courts Gulf investors in R125bn recovery
drive’, Business Day, 25 September 2025.
30 Generation capacity of 5 229 megawatts was registered with NERSA
in the first three quarters of this year while 7 615 megawatts of capacity
are expected to reach commissioning stage by 2027. See Eskom,
Generation Connection Capacity Assessment (GCCA) 2025,
Johannesburg: Eskom, 2023.


Contributions to real GDP growth
Sources: Stats SA and SARB
Percentage points
* Percentage change
Forecast
Net exports
Residual
Change in inventories
Gross fixed capital formation
Government consumption
Household consumption
GDP*


Household consumption expenditure
and fixed investment*
Fixed investment
Household consumption expenditure
Sources: Stats SA and SARB
Percentage change over four quarters
* Dotted lines indicate forecasts


Projects registered with NERSA
Source: NERSA
Gigawatts

OCTOBER 2025


Current account balance
Trade balance
Services, income and transfers balance
Current account balance
Source: SARB
Percentage of GDP
Forecast

Terms of trade*
Actual
Mar 2025
Sep 2025
Source: SARB
Index: 2015 = 100
* Dotted lines indicate forecasts
Net exports are expected to detract from growth in the short
term but to add to growth in the outermost year of the forecast.
Export volumes are projected to be boosted by commodity
prices and a recovery in trading-partner growth, while the slow
rise in investment should help contain imports.
Macro balances
Current account
South Africa’s current account deficit deteriorated to 0.9% of
GDP in the first half of this year from 0.6% a year ago. The
services, income and transfers (SIT) account was broadly
unchanged while the trade surplus shrank by R23 billion,
mainly due to a larger manufacturing deficit and a smaller
mining surplus. Agriculture helped, but not enough to reverse
the decline.
The trade surplus is expected to improve in the third quarter
of 2025, lifted by higher gold and platinum group metals
(PGMs) prices, while the SIT deficit is projected to remain
flat. The current account deficit is expected to narrow to 1%
of GDP this year, an improvement over the April forecast,
before widening again to 1.9% by 2027. Despite the projected
deterioration, the current account deficit remains favourable
compared with its long-term average of 3.3% of GDP.
A stronger current account reduces pressure on the rand
exchange rate, supporting disinflation.
Despite these gains, South Africa remains vulnerable to global
market swings and commodity price shocks, which can disrupt
capital flows and complicate policy. Sustaining the current
account’s recovery will depend on export competitiveness and
further diversification.
Fiscal balances
Revenue and expenditure trends over the first five months
of the 2025/26 fiscal year suggest that National Treasury
may be on course to realise yet another primary surplus this
year. Gross tax revenue increased by 6.5% in the five months
up to August 2025, higher than the 4.3% growth achieved
over the same period in 2024/25. Tax revenue growth was
supported by strong performance in corporate income tax
(6.9%), personal income tax (8.4%) and value-added tax
(11.5%). Meanwhile, expenditure grew by 4% over the same
period, slightly down from 4.3% in the previous fiscal year,
partly reflecting the delayed finalisation of Budget 2025.
These dynamics have led to a narrower budget deficit over
the review period.

OCTOBER 2025
For the full fiscal year, however, fiscal outcomes remain
indeterminate, as both revenue and expenditure trajectories
could shift. Spending remains vulnerable to potential bailouts
for financially distressed state-owned enterprises.
Conclusion
Near-term economic prospects remain modest, with quarterly
growth rates of 0.4% projected for each of the remaining two
quarters of 2025, bringing growth for the year to 1.2%. Over
the medium term, growth is expected to be buttressed by
household consumption spending on the back of an improving
financial position and by a pickup in capital formation spurred
by further progress in the implementation of structural reforms,
particularly in the energy and logistics sectors.

Expenditure
Gross tax revenue
2024/25
2025/26
*
Source: National Treasury
Percentage change from previous year
Year-to-date main expenditure
and gross tax revenue*
April to August

OCTOBER 2025
Box 7 What’s driving real disposable
income growth?
The relative contributions of the components of real disposable
income have shifted since the COVID-19 pandemic, with non-labour
income becoming more important. Real disposable income – the
income available to households after taxes for spending or saving
– grew by 1.5% this past year, but compensation of employees
contributed only 27% of this growth, compared with an average of
86% in the previous decade.1 Understanding the sources of these
shifts and their potential implications is important given the centrality
of real disposable income for household expenditure growth.
Before the COVID-19 pandemic, compensation of employees was
consistently the main contributor to real disposable income growth.
Although it remains the largest component, its relative contribution
has declined.2 Non-labour income, which is primarily net property
income and social benefits, has seen its relative contribution to
households’ real disposable income growth increase strongly over
this period.3 Given the documented volatility of non-wage income,
this shift raises questions regarding the resilience of South Africa’s
consumption-led growth.4
Net property income has been buoyed by dividend payouts by
property investment firms, mostly in commercial property, as well as
gains realised in the residential property segment. Solid net property
income may also reflect the buoyant equity market performance,
both domestically and internationally, as well as generally higher
dividend payouts given muted investment activity. Net social
benefits, reflecting support provided to individuals by government
and non-profit institutions to meet mostly basic needs, along with
the two-pot retirement withdrawals, also became an important
driver of real disposable income growth during this period, but have
been volatile.
However, the relationship between real disposable income growth
and household consumption spending growth has not changed
materially. This may reflect the relative stability in net property
income so far, although its future performance remains uncertain.
The unchanged relationship could also be a result of the shorter
time period since the shifts began.
1 Real disposable income comprises gross operating surplus/mixed
income, primary income components such as compensation of
employees and net property income, as well as net social benefits
and current transfers.
2 This decline is partly the result of the large-scale job and earnings
losses during the pandemic as well as the changing nature
of employment/income-generating activities since then.
3 Property income is derived from the ownership of financial or tangible
non-produced assets (mainly land or sub-soil assets), and includes
dividends received and income attributed to insurance
policy holders and pension fund members, as well as net interest
and net rent received.
4 See N Wang-Ly and B R Newell, ‘Income volatility and saving
decisions: Experimental evidence’, Journal of Experimental Finance
43, 2024, pp 1–19. See also J Peets and J Robson, ‘Living gig to gig
and paycheque to paycheque: how income volatility affects
financial decisions’, Think Forward Initiative Technical Report, Berlin:
Think Forward Initiative, February 2021.
-15
-10
-5

Contributions to growth in real disposable income*
* Weights in brackets
** Percentage change
Source: Stats SA
Percentage points
Direct taxes (15%)
Net current transfers (3%)
Gross operating surplus/mixed income (16%)
Compensation of employees (69%)
Net property income (21%)
Net social benefits (6%)
Real disposable income (100%)**
-15
-10
-5

Non-labour income
Compensation of employees
Household final consumption expenditure
Sources: Stats SA and SARB
Percentage change
Income sources and household spending
-6
-4
-2

-6
-4
-2

Household final consumption expenditure**
2000Q1–2019Q4
2020Q1–2025Q2
Real disposable income**
Household final consumption expenditure
and real disposable income*
* Outliers larger than 6% excluded from chart
** Percentage change over one quarter
Sources: Stats SA and SARB

OCTOBER 2025

Other
Vehicles
Manufacturing (excluding vehicles)
Mining
Source: SARS
Per cent
Share of South Africa’s exports to the US
US tariffs applicable to South Africa’s products
Sector
Products
Applicable
sectoral tariffs
Agriculture
All agricultural products
30%
Manufacturing
Vehicles and auto-parts
25%
All other manufacturing
30%
Pharmaceuticals
100%*
Semiconductors
and energy products
Exempted
Lumber articles
Exempted
Mining
Iron ore
30%
Precious metal jewellery
30%
Diamonds
30%
Aluminium
50%
Copper products
50%
PGMs, manganese, coal,
gold, chromium, bullion,
niobium, tantalum, vanadium
or zirconium ores
and concentrates
Exempted
* On average, pharmaceutical products account for 0.5% of South
Africa’s total exports to the US.
Sources: Various sources
Box 8 Shifting trade winds
1 The averages of export volumes are calculated over the past
five years (2019–24) using data from the South African Revenue
Service (SARS).
2 SARS does not publish gold exports to individual countries.
3 The US has reached or is in the process of reaching agreements
with Japan, South Korea and the European Union (EU) to reduce
certain vehicle and auto-part tariffs from 25% to 15% under the
new ‘reciprocal’ trade arrangements. For the United Kingdom,
a 10% tariff applies to the first 100 000 vehicles exported
annually, which is approximately the number of cars sold in 2024.
Additional vehicles will be subject to the standard 25% tariff. See
J Irwin, ‘EU, Japan, South Korea await lower auto tariffs as new
reciprocal duties take effect’, Automotive News, 7 August 2025.
4 According to the Steel and Engineering Industries Federation of
Southern Africa (SEIFSA), a survey of 126 firms found that onethird of the respondents expected revenue declines of 10–20%
and job losses due to the new US tariffs. Some companies
described the measures as an ’existential threat’, citing halted
investments and trade diversion pressures. See D Parker, ‘US
tariffs expected to have significant impact on metals, engineering
sector, SEIFSA warns’, Engineering News, 4 August 2025.
On 7 August 2025, the United States (US) imposed a 30% import tariff
on most of South Africa’s exports, effectively ending the country’s
preferential access under the African Growth and Opportunity Act
as well as the Generalised System of Preferences . Nearly two-thirds
of South Africa’s exports to the US are now subject to tariffs. For
marginal exporters, the loss of preferential access raises concerns
about commercial viability and increases the risk of job losses in the
affected industries, with potential spillover effects on other sectors.
The US is a significant trading partner to South Africa, accounting
for 7.7% of the country’s exports in 2024. Exports to the US are
dominated by mining (about 60%), manufacturing (30%) and
agriculture (5%).1
Platinum group metals (PGMs) account for the lion’s share of South
Africa’s mining export basket to the US. Of the total non-gold mining
exports to the US in 2024, PGMs, manganese and coal accounted
for around 65% by value.2 With the key mining export commodities
exempted from tariffs, the overall impact on mining is expected to
be modest, although segments such as aluminium, with a tariff rate
of 50%, will be heavily impacted.
In contrast, the bulk of manufactured goods exported to the US
are subject to import tariffs. The US is South Africa’s third-largest
export market for vehicles and parts, with exports worth R35
billion in 2024. The 25% tariff levied on South Africa’s auto and
parts exports is higher than that for most competitors and will
sharply reduce South Africa’s competitiveness in the US market,
threatening output and jobs in a sector that anchors the broader
manufacturing base.3, 4 Other manufactured goods, already under
strain from low competitiveness and other structural impediments,
face a 30% import duty.

OCTOBER 2025


Tariff impact
Employment
Exports
GDP
Source: SARB
Percentage change from baseline
Forecast
Agricultural exports, although a small share of total exports to the
US (4.2%), are fully exposed to the new tariffs. Citrus, sugar and
wine are among the most-affected products, both directly because
they face a 30% tariff but also indirectly given that competing
products from other regions face lower tariffs.5 The loss of jobs
and incomes could decimate some rural communities through
localised general equilibrium effects.6
South African Reserve Bank modelling indicates that the tariffs
could reduce domestic output growth by 0.4 percentage points in
2026, while economy-wide employment is lower by about 40 000
compared with the baseline. Other studies estimate that up to 22
000 jobs could be lost under the new tariffs.7
Reduced US demand could also disrupt global supply chains and
depress the prices of key exports, presenting additional impact
channels.8 Trade diversion, where exports are redirected to other
markets, may offer some relief, but the low competitiveness of
South African producers and subdued growth in trading-partner
economies suggest diminished prospects.
Overall, the South African economy faces modest macroeconomic
effects from the US trade tariffs, but sectoral impacts are likely to
be significant.

5 South Africa faces a tariff of 30% on its citrus exports compared
with Chile, Peru, Argentina and Australia who each face a 10%
tariff. See Citrus Growers’ Association of Southern Africa,
Overview of SA citrus in the USA: Briefing note, Durban:
Citrus Growers’ Association of Southern Africa, 2025.
6 Sugar and citrus are labour-intensive, supporting around
300 000 jobs, and have little scope for trade diversion. See
S Skweyiya, ‘South Africa’s sugar farmers face ‘double whammy’
from Trump tariffs, cheap imports’, Reuters, 4 September 2025.
7 See L Edwards and J Chien, ‘Tariff Turbulence: The
Consequences of United States Tariff Increases for South African
Exports’, Economic Research Southern Africa Policy Paper 41,
Pretoria: Economic Research Southern Africa, July 2025.
8 Although, platinum group metals (PGMs) are exempted, the
sector, remains vulnerable due to secondary effects on the
automotive industry, which is the largest global consumer
of PGMs. See Bishop Fraser Attorneys, US Tariffs and the
South African Mining Industry: Trade Friction and Sector
Risk, 16 April 2025.

OCTOBER 2025
Price developments:
stability at the core
Headline inflation has accelerated recently, driven by higher
food inflation and declining fuel deflation. In contrast, core
inflation has remained subdued, hovering around the SARB’s
preferred 3% objective. Muted core inflation reflects a
moderately negative output gap, subdued ULC growth and a
stronger rand exchange rate. Inflation expectations continued
to edge lower, further easing pressures. The SARB expects
headline inflation to average 3.4% this year and to rise to 3.6%
in 2026 before softening to 3.1% in 2027. Near-term pressures
stem from food inflation, while the additional electricity tariffs
in 2026 and 2027 are expected to be the primary source of
upward price pressure. Core inflation is expected to remain
stable and close to target over the forecast horizon.
Oil prices and fuel inflation
Since April, the Brent crude oil price has remained stable at
approximately US$68 per barrel. This reflects ample supply
and subdued demand linked to moderate global economic
activity. Combined with a relatively stable rand exchange rate,
domestic fuel prices experienced only minor month-to-month
changes during the review period. Consequently, domestic
fuel inflation was largely influenced by base effects.
The oil market is projected to remain in oversupply over the
medium term, driven by increased production by OPEC+
(members of the Organization of the Petroleum Exporting
Countries (OPEC) plus other oil-producing countries).31 While
uncertainty persists regarding global economic activity and
oil demand, risks to global growth are tilted to the downside,
placing downward pressure on oil prices. The SARB
has accordingly lowered its medium-term crude oil price
assumption from US$76 per barrel in the April 2025 MPR to
US$70 per barrel.
Administered price inflation
Fuel deflation exerted a moderating influence on administered
price inflation over the past year, and pulled it lower to average
1.6% over the review period. However, as the impact of earlier
fuel price declines began to fade, administered price inflation
rose to 3.7% in July 2025 before slowing somewhat to 3.5% in
August. Excluding fuel and paraffin, administered price inflation
remained high, averaging around 7% over the past year.
31 See US Energy Information Administration, Short-Term Energy Outlook,
Washington, D.C.: US Energy Information Administration,
September 2025.

Non-core
Headline
Core
Preferred objective
Sources: Stats SA and SARB
Percentage change over four quarters
* Dotted lines indicate forecasts
3–6% inflation target band
Headline inflation and its components

Oil price forecast evolution*
Actual
Jan 2025
Mar 2025
May 2025
Jul 2025
Sep 2025
Source: SARB
US$ per barrel
* Dotted lines indicate forecasts
-5

Administered prices excluding the basic fuel price
Administered prices
Preferred objective
Sources: Stats SA and SARB
Percentage change over 12 months
Administered price inflation
3–6% inflation target band

OCTOBER 2025
Fuel price inflation is driven by the basic fuel price (which is
determined by international oil prices and the exchange rate
and is therefore not ‘regulated’) and adjustments to fuel taxes,
the Road Accident Fund levy as well as margins. When the
basic fuel price was excluded, administered price inflation
averaged 5.6% over the review period.
Electricity and water price inflation remain the primary sources
of upward pressure within the administered price basket. Since
2009, electricity prices have increased by more than 600%
and water prices by more than 500%, while overall consumer
prices have roughly doubled. The respective 10.4% and
12% increases announced in August 2025 mean that these
components will average around 10% this year, compared with
a projected headline inflation rate of 3.4%. The large increases
in water tariffs reflect financial pressure on municipalities and
long-standing underinvestment in water infrastructure, where
non-revenue water has consistently exceeded 40%.32
The outlook for electricity inflation has worsened following
NERSA’s approval of an additional R54 billion in revenue
for Eskom over the next two years. The SARB now expects
electricity inflation to average 7.9% over the medium term, up
from 6.6% in the April MPR.
With headline inflation hovering around the 3% objective, large
increases in administered prices are becoming more difficult
to justify and call for urgent policy measures to align increases
in these prices with broader price trends in the economy.
Low headline inflation also contributes to moderations in
administered price inflation through partial indexation.33
Food and non-alcoholic
beverages inflation
Food and non-alcoholic beverages (NAB) inflation rose sharply
to 5.7% in July 2025 before easing slightly to 5.2% in August,
up from 2.7% in March, amid supply disruptions in the meat
and vegetable categories. Inflation remained contained in most
of the higher-weighted categories, including cereal products,
milk, other dairy items and eggs.
Meat supply was constrained by a severe outbreak of footand-mouth disease, resulting in record-high beef prices,
while vegetable supply was affected by adverse weather and
disease-related challenges (see Box 9).
32 See Department of Water and Sanitation, 2023 No Drop Report, Pretoria:
Department of Water and Sanitation, 2023. Non-revenue water is water
produced and supplied by water utilities but which earns no revenue as
a result of physical and other losses such as leaks and billing errors.
33 See C Loewald, K Makrelov and E Pirozhkova, ‘The short-term costs
of reducing trend inflation in South Africa’, South African Reserve Bank
Working Paper Series No. WP/22/08, Pretoria: SARB, August 2022.

Electricity inflation forecast evolution*
Actual
Mar 2025
Sep 2025
Sources: Stats SA and SARB
Percentage change over four quarters
* Dotted lines indicate forecasts
3–6% inflation target band
Preferred objective

Administered prices excluding the
basic fuel price and electricity
Headline inflation (annual per cent
average; lagged by one year)
Sources: Stats SA and SARB
Percentage change over four quarters
Administered price inflation and indexation
-2

Contributions to food and NAB inflation
Other food
NAB
Sugar, confectionary and desserts
Vegetables
Milk, other dairy products and eggs
Meat
Cereal products
Food and NAB*
* Percentage change over 12 months
Sources: Stats SA and SARB
Percentage points

OCTOBER 2025
However, supply conditions for meat and vegetables have
begun to improve, supported by policy interventions and the
natural easing of earlier shocks.34 Meanwhile, declining white
maize spot prices following a bumper crop this past season
have helped contain cereal inflation, partially offsetting the
impact of the elevated meat and vegetable inflation. Looking
ahead, food and NAB inflation is expected to average 4.3%
this year and to ease gradually to 3% by the end of the
forecast horizon, supported by further improvement in supply
conditions and expectations of a strong field crop harvest in
the 2025/26 season.
34 To curb the spread of foot-and-mouth disease, farms and feedlots with
outbreaks have been quarantined, and, in severe cases, entire areas have
been classified as Disease Management Areas, as in the case of parts
of the Eastern Cape and KwaZulu-Natal. Vaccination stocks have been
built up with the purchase of more than 900 000 doses, and the pace of
inoculations has been scaled up. See Reuters, ‘South Africa to ramp up
vaccinations as foot-and-mouth disease spreads’, Reuters, 6 June 2025.

Actual
Mar 2024
Sep 2024
Mar 2025
Sep 2025
Sources: Stats SA and SARB
Percentage change over four quarters
Food and NAB inflation forecast evolution*
* Dotted lines indicate forecasts
Preferred objective
3–6% inflation target band
Jul 2025
Consumer food price inflation (September 2025 forecasts)
Percentage change over four quarters, March 2025 forecasts in brackets
Actual
Forecast
Weight
2014–24
2024*
2025Q1
2025Q2
2025Q3
2025Q4
2025*
2026Q1 2026Q2
Food and non-alcoholic beverages


Milk, other dairy products

* Annual average percentage change
Sources: Stats SA and SARB

OCTOBER 2025
Core inflation
Core inflation, which accounts for about three-quarters of the
headline consumer price index basket, remained contained
around 3% over the review period, reflecting subdued price
increases in both core goods and services. Other measures
of underlying inflation monitored by the SARB, in particular
trimmed mean and supercore, have also remained stable
around 3%. The persistent and common component of
inflation, although slightly elevated, also moved in tandem with
the other measures.35
Core goods inflation eased to a five-year low of 1.3% in
June 2025 before rising to 1.9% in August. The increase was
driven by higher inflation in alcoholic beverages and tobacco
as well as several smaller-weighted components of the
basket, largely due to exchange rate effects. Going forward,
core goods inflation is expected to gradually normalise,
driven by household spending on durable and semi-durable
goods as well as fading base effects. The SARB projects
core goods inflation to average 2.2% in 2025 and 3% over the
medium term.
Services inflation, unlike core goods, remained relatively
elevated but stable around 3.7% over the review period. The
somewhat higher services inflation was mainly due to medical
insurance which recorded an increase of 10.6% in April 2025
and is expected to stay at this level for the remainder of the
year. Softer inflation in restaurants and accommodation,
along with deflation in transport services, helped to offset
increases in housing and utilities as well as in the smallerweighted components of the services basket. As utilities and
health insurance are unlikely to be surveyed again this year,
and as inflation in other components is seen as relatively
contained, services inflation is expected to average 3.8%
in 2025.
Moderate growth in wages and ULCs, along with easing
inflation expectations, has helped keep services inflation
relatively contained (see Box 2). Excluding insurance, services
inflation averaged 2.8% over the review period. Services
inflation is projected to slow to 3.5% in 2026 and 3% in 2027.
35 Trimmed mean inflation, supercore inflation as well as the persistent
and common component of inflation (PCCI) averaged 3%, 3% and 4.1%
over the review period respectively. PCCI is derived from a factor model
which extracts a common trend inflation rate from the full consumer price
index basket, which explains its relatively elevated level. For more details,
see A Amaral, M Kruger, D Lekgeu and W Simbanegavi, ‘PCCI of SA’s
CPI: Estimating the persistent and common component of inflation for
South Africa’, South African Reserve Bank Special Occasional Bulletin of
Economic Notes No. Special OBEN/24/02, Pretoria: SARB, August 2024.

Underlying inflation*
Core inflation
Sources: Stats SA and SARB
Percentage change over 12 months
* Shaded region includes the range of supercore inflation, core
inflation, trimmed mean inflation as well as the persistent and
common component of inflation.
3–6% inflation target band
Preferred objective

Core goods inflation forecast evolution*
Actual
Mar 2024
Sep 2024
Mar 2025
Jul 2025
Sep 2025
Sources: Stats SA and SARB
Percentage change over four quarters
Preferred objective
* Dotted lines indicate forecasts
3–6% inflation target band

Services inflation forecast evolution*
Actual
Mar 2024
Sep 2024
Mar 2025
Jul 2025
Sep 2025
* Dotted lines indicate forecasts
Sources: Stats SA and SARB
Percentage change over four quarters
Preferred objective
3–6% inflation target band

OCTOBER 2025
Medium-term inflation outlook
The medium-term trajectory of core inflation – and, by
extension, overall inflation – is shaped by four key drivers in
the QPM: inflation expectations, ULCs, the exchange rate gap
and the output gap. In addition, the July MPC meeting saw
the inflation anchor in the QPM lowered to 3% from 4.5%. This
change in steady states explains the divergent trajectories for
these drivers in the outer years compared with the April MPR.
Inflation expectations reflect how economic agents anticipate
future prices to evolve. These expectations are shaped either
by past inflation trends (backward-looking) or by the central
bank’s credibility, policy actions and stated inflation target
(forward-looking).36 The Bureau for Economic Research twoyears-ahead inflation expectations eased to 4.2% in the third
quarter of 2025 from 4.7% in the first quarter. The SARB
expects inflation expectations to continue to trend lower and
to converge to 3% by 2027, influenced by the low inflation
observed over the past year (around 3%) and by the SARB’s
preferred 3% anchor.
Inflation pressures also emanate from the labour market.
Two key indicators are the real ULC gap, defined as the
deviation of real wages per worker from productivity-aligned
(equilibrium) levels, and nominal ULC growth, which reflects
the increase in labour costs per unit of output. Over the
36 See E Pirozhkova, J Rakgalakane, L Soobyah and R Steinbach,
‘Enhancing the Quarterly Projection Model’, South African Reserve Bank
Working Paper Series No. WP/23/05, Pretoria: SARB, June 2023.

Actual
Mar 2025
Sep 2025
Sources: BER and SARB
Per cent
-
Two-years ahead inflation expectations:
all groups*
* Shaded region indicates interquartile range of survey
respondents; dotted lines indicate forecasts.
3–6% inflation target band
Preferred objective
Headline inflation (September 2025 forecasts)
Percentage change over four quarters, March 2025 forecasts in brackets
Actual
Forecast
Weight
2014–24
2024*
2025Q1
2025Q2
2025Q3
2025Q4
2025*
2026Q1
2026Q2

Annual average percentage change
**
CPI excluding food, non-alcoholic beverages, fuel and electricity
***
Combines actual rentals and owners’ equivalent rent
Sources: Stats SA and SARB

OCTOBER 2025

Average salaries and unit labour cost*
Average salaries
Unit labour cost
Preferred objective
Source: SARB
Percentage change over four quarters
3–6% inflation target band
* Dotted lines indicate forecasts

Exchange rate: rand to US dollar*
Actual
Mar 2025
Sep 2025
Source: SARB
Rand per US$
* Dotted lines indicate forecasts
review period, both average salaries and nominal ULC growth
remained contained, with real wage growth broadly aligned
with productivity gains. The SARB expects this trend to
continue over the medium term, as wage formation is likely to
be guided either by backward indexation to the lower inflation
observed over the past year or by the 3% inflation objective.
The exchange rate influences medium-term inflation by
affecting import costs and firms’ real marginal costs. During
the review period, the rand appreciated against the US dollar,
strengthening from R18.33 to the US dollar at the May 2025
MPC meeting to R17.61 by September. The rand trajectory
benefits from a lower inflation target which reduces the inflation
differential with trading partners, while the real rand is less
undervalued, compressing the real effective exchange rate
gap. These developments imply reduced inflationary pressure
on headline inflation over the forecast horizon.
The output gap is projected to remain slightly negative but to
close over the medium term, exerting modest disinflationary
pressure. This trajectory reflects the mild dampening effect of
the moderately higher real interest rates in the QPM, as inflation
is forecast to decline more rapidly than nominal interest rates.37
Conclusion
The recent increase in headline inflation reflects pressures from
the non-core components of the consumer basket, mainly
due to food price shocks and the fading impact of earlier fuel
price declines. These supply-side pressures are expected to
be temporary, as supply conditions in meat and vegetable
markets continue to improve. Underlying inflation remains
contained and less responsive to external shocks. Headline
inflation is projected to rise to 3.6% in 2026 before easing
to the 3% objective from 2027. The slower return to target is
largely due to unexpectedly high electricity price inflation.
37 The output gap is expected to be -0.3%, -0.4% and -0.1%
of potential GDP in 2025, 2026 and 2027 respectively.

OCTOBER 2025
Box 9 The ‘meat’ of the food inflation story
1 During the 2022 episode, beef inflation peaked at 13.7%, whereas
currently it has soared to more than double that level.
2 See N Wilson, ‘Red meat prices surge amid panic buying
as foot-and-mouth spreads’, News24, 4 July 2025; see
also N Wilson, ‘SA pork prices jump as shoppers switch
from pricey FMD-hit beef’, News24, 5 August 2025.
3 See W Sihlobo, SA consumer food price inflation rises again,
Pretoria: Agricultural Business Chamber, August 2025.
4 See Bureau for Food and Agricultural Policy, Food inflation brief,
Pretoria: Bureau for Food and Agricultural Policy, July 2025.
A surge in food price increases pushed headline inflation above 3%
in recent months. Price pressures in the food basket have been
concentrated in the meat as well as vegetable subcomponents. This
box unpacks the drivers of the recent acute increases in food prices
as well as the outlook for food inflation.
Meat price increases, which had remained flat closer to 0% for the
six months from October 2024, surged during the review period.
Meat inflation rose to 3% in April 2025 and jumped to 11.3% by
August, driven primarily by a domestic outbreak of foot-and-mouth
disease which disrupted beef slaughter activity. This, along with
lingering drought effects, pushed beef inflation sharply higher – from
just 0.5% in March to 30% in August. The current outbreak appears
to be more severe and widespread than the one in 2022.1 Other
factors have added to the pressure, including restrictions on poultry
imports from Brazil due to avian flu, panic-buying and increased
demand for pork as consumers looked for cheaper alternatives to
beef and chicken.2
Vegetable inflation, although a small part of the food basket, also
surged in recent months, rising from 3.3% in March 2025 to 9.3% in
August. The spike is mainly due to heavy rains, crop diseases and
harvest disruptions in key farming regions. Damaged roads due to
the heavy rains caused temporary distribution challenges, pushing
prices further higher.3
Looking ahead, the supply of meat and vegetables is expected to
improve further, easing price pressures. Cattle slaughter activity has
resumed in the affected feedlots, while the ban on Brazilian chicken
imports has been lifted.4 For vegetables, supply is improving as
weather conditions return to normal.
-4

Jan Apr
Jul Oct Jan Apr
Jul Oct Jan Apr
Jul Oct
Contributions to meat inflation*
Other preserved meat (27.5%)
Dried and smoked (2.6%)
Poultry (37.2%)
Lamb (4.8%)
Pork (5.4%)
Beef (22.6%)
Total meat infation (100%)**
* Weights in brackets
** Percentage change over 12 months
Sources: Stats SA and SARB
Percentage points

-20

Beetroot (11.0%)
Lettuce (1.8%)
Cucumber (1.5%)
Total vegetable inflation (100%)
* Weights in brackets
Source: Stats SA
Percentage change over 12 months
Selected vegetable inflation components*

OCTOBER 2025
Conclusion
The global economy has shown resilience in the face
of recent trade disruptions and heightened geopolitical
tensions. Stronger-than-expected performance in the first
half of the year has led to upward revisions in the annual
growth forecasts. Among major advanced economies,
growth rates are expected to converge: the US is slowing,
while others are projected to grow faster than they did
last year. However, the medium-term growth outlook
remains uncertain due to rising trade protectionism and
the increased use of tariffs for non-trade purposes, which
could further disrupt supply chains and global trade.
Global disinflation has continued, aided by lower
energy prices and cooling labour markets in advanced
economies. A weaker US dollar has also helped reduce
imported inflation in other countries. In countries that have
imposed tariffs, signs of pass-through to consumer prices
are emerging, and are likely to delay the achievement of
inflation targets.
Central banks are expected to ease policy further, but the
extent and pace of rate cuts will differ due to divergent
inflation risks and distances from neutral. Across
emerging markets, policy rates are mostly near neutral.
Elevated global economic uncertainty increases the risk of
abrupt currency depreciations and potential rises in inflation,
especially in emerging economies. As a result, central banks
are likely to remain cautious and data-dependent as they
work to stabilise inflation at target levels.
Challenges for monetary policy are also likely to emanate
from high fiscal deficits and elevated debt levels that
stimulate demand and raise long-term interest rates.
This can potentially undermine the efficacy of monetary
policy and raise the risk of fiscal dominance. For emerging
markets with high debt levels, rising global interest rates
increase the cost of accessing international capital,
posing risks to both the balance of payments and fiscal
sustainability.
South Africa’s inflation hovered around the lower
bound of the 3–6% target band over the past
year, while forecasts were benign. Core inflation
has been stable at around 3%. The favourable
inflation outlook enabled the MPC to reduce the
policy rate by a further 50 basis points during the
review period.
In July 2025, the SARB revised its preferred inflation
objective down to 3% from 4.5% to lock in recent
disinflation gains. The rand and bond yields responded
positively to the improved inflation dynamics. A low
long-term inflation rate is associated with reduced
borrowing costs and improved macroeconomic
stability. However, inefficiencies in administered
pricing remain a challenge. While lower headline
inflation helps moderate administered price inflation,
sector-specific reforms are needed to improve
pricing efficiency.
The domestic economy grew by 0.8% quarter on
quarter in the second quarter of 2025, exceeding
expectations. However, growth projections for the
remainder of the year remain modest at 0.4% per
quarter, reflecting weak investment and the higher
US tariffs on South African exports. Unlocking
investment at scale requires comprehensive and
coordinated reform efforts across various sectors.
Addressing only a single constraint, as has been the
case so far with regards to load-shedding, has proven
insufficient to restore investor confidence. Persistent
logistical bottlenecks and high costs of doing business
remain key barriers and require urgent attention.
A more favourable macroeconomic environment,
characterised by low inflation and progress towards
fiscal sustainability, would significantly enhance the
investment climate.

OCTOBER 2025
Glossary
Advanced economies: Advanced economies are countries
with high gross domestic product (GDP) per capita,
diversified exports and close integration into the global
financial system.
Balance of payments: This is a record of transactions
between the home country and the rest of the world over a
specific period of time. It includes the current and financial
accounts. See also ‘Current account’ below.
Brent crude: Brent crude is a light and sweet blend of oil from
five different fields in the North Sea. The price of Brent crude
is one of the benchmark oil prices in international markets.
Budget deficit: A budget deficit indicates the extent to which
government expenditure exceeds government revenue.
Business and consumer confidence: These are economic
indicators that measure the level of optimism about
the economy and its prospects among business managers
and consumers.
Commodities: Commodities can refer to energy, agriculture,
metals and minerals. Major South African-produced
commodities include platinum and gold.
Consumer price index (CPI): The CPI provides an indication
of aggregate price changes in the domestic economy.
The index is calculated using a number of categories
forming a representative set of goods and services bought
by consumers.
Core inflation: Core inflation generally refers to underlying
inflation excluding the volatile elements (e.g. food and energy
prices). The South African Reserve Bank’s (SARB) forecasts
and discussions refer to headline CPI excluding food,
non-alcoholic beverages (NAB), fuel and electricity prices.
Crude oil price: This is the United States (US) dollar price
per barrel of unrefined oil. See also ‘Brent crude’ above.
Current account: The current account of the balance of
payments consists of net exports (exports less imports)
in the trade account as well as the services, income and
current transfers.
Emerging markets: Emerging markets are countries with
low to middle income per capita. They are advancing
rapidly and are integrating with global (product and
capital) markets.
Exchange rate depreciation (appreciation): Exchange rate
depreciation (appreciation) refers to a decrease (increase) in
the value of a currency relative to another currency.
Exchange rate pass-through: This is the effect of exchange
rate changes on domestic inflation (i.e. the percentage
change in domestic CPI due to a one percent change in the
exchange rate). Changes in the exchange rate affect import
prices, which in turn affect domestic consumer prices
and inflation.
Forecast horizon: This is the future period over which the
SARB generates its forecasts, typically between two and
three years.
Gross domestic product (GDP): GDP is the total market
value of all the goods and services produced in a country. It
includes total consumption expenditure, capital formation,
government consumption expenditure and the value of
exports less the value of imports.
Gross fixed capital formation (investment): The value of
acquisitions of capital goods (e.g. machinery, equipment
and buildings) by firms, adjusted for disposals, constitutes
gross fixed capital formation.
Headline consumer price index (CPI): Headline CPI refers
to CPI for all urban areas, as measured on a monthly basis
by Statistics South Africa (Stats SA). Headline CPI is a
measure of price levels in all urban areas. The 12-month
percentage change in headline CPI is referred to as ‘headline
CPI inflation’ and reflects changes in the cost of living. This
is the official inflation measure for South Africa.
Household consumption: This is the amount of money
spent by households on consumer goods and services.
Inflation (growth) outlook: This outlook refers to the evolution
of future inflation (growth) over the forecast horizon.
Inflation-targeting: This is a monetary policy framework
used by central banks to steer actual inflation towards an
inflation target level or range.
Monetary policy normalisation: This refers to the unwinding
of an unusually accommodative monetary policy. It could
also mean adjusting the economy’s policy rate towards its
real neutral policy rate.

OCTOBER 2025
Unit labour cost (ULC): A ULC is the labour cost to
produce one ‘unit’ of output. This is calculated as the
total wages and salaries in the non-agricultural sector
divided by the real value added at basic prices in the
non-agricultural sector of the economy.
Neutral real interest rate (NRIR): The NRIR is the level at
which the real interest rate will settle once the output gap is
closed and inflation is stable.
Nominal effective exchange rate (NEER): The NEER
is an index that expresses the value of a country’s
currency relative to a basket of other (trading-partner)
currencies. An increase (decrease) in the NEER indicates
a strengthening (weakening) of the domestic currency
relative to the selected basket of currencies. The weighted
average exchange rate of the rand is calculated against
20 currencies. The weights of the five major currencies are
as follows: the euro (30.68%), the Chinese yuan (24.53%),
the US dollar (10.56%), the Japanese yen (4.95%) and the
Indian rupee (4.85%). Index: 2015 = 100. See also ‘Real
effective exchange rate’ below.
Output gap/potential growth: Potential growth is the
rate of GDP growth that could theoretically be achieved if
all the productive assets in the economy were employed
in a stable inflation environment. The output gap is the
difference between actual growth and potential growth,
which accumulates over time. If this is negative, then the
economy is viewed to be underperforming and demand
pressures on inflation are low. If the output gap is positive,
the economy is viewed to be overheating and demand
pressures are inflationary.
Policy rate: A policy rate is the interest rate used by a central
bank to implement monetary policy.
Productivity: Productivity indicates the amount of goods
and services produced in relation to the resources utilised
in the form of labour and capital.
Real effective exchange rate (REER): The REER is the
NEER adjusted for inflation differentials between South Africa
and its main trading partners. See also ‘Nominal effective
exchange rate’ above.
Repurchase (repo) rate: This is the policy rate that is set
by the SARB’s Monetary Policy Committee (MPC). It is the
rate that commercial banks pay to borrow money from the
SARB.
Real repo rate: This is the nominal repo rate, as set by the
MPC, adjusted for expected inflation.
Terms of trade: This refers to the ratio of export prices to
import prices.

OCTOBER 2025
Abbreviations
BER
Bureau for Economic Research
BIS
Bank for International Settlements
BoE
Bank of England
BoJ
Bank of Japan
BRICS
Brazil, Russia, India, China, South Africa
COVID-19
coronavirus disease 2019
CPI
consumer price index
DXY index
United States dollar index
ECB
European Central Bank
EN
Economic Note
EUR
euro
Fed
Federal Reserve (United States)
FMD
foot-and-mouth disease
FRA
forward rate agreement
FX
foreign exchange
G10
Group of Ten
GCCA
Generation Connection Capacity Assessment
GDP
gross domestic product
GFCF
gross fixed capital formation
GVA
gross value added
Haver
Haver analytics
HUF
Hungarian forit
IMF
International Monetary Fund
Jibar
Johannesburg Interbank Average Rate
JSE
JSE Limited
MOVE
Merrill Lynch Option Volatility Estimate
MPC
Monetary Policy Committee (South African Reserve Bank)
MPR
Monetary Policy Review
NAB
non-alcoholic beverages
NAM
National Association of Manufacturers
NEER
nominal effective exchange rate
NERSA
National Energy Regulator of South Africa
NRIR
neutral real interest rate
OBEN
Occasional Bulletin of Economic Notes
OECD
Organisation for Economic Co-operation and Development
OPEC
Organization of the Petroleum Exporting Countries
OPEC+
OPEC members plus other oil-producing countries
PCCI
persistent and common component of inflation
PGM
platinum group metal
QES (survey)
Quarterly Employment Statistics (survey)
QPM
Quarterly Projection Model
R
rand

OCTOBER 2025
REER
real effective exchange rate
repo (rate)
repurchase (rate)
r-star
long-run real neutral interest rate
SA
South Africa(n)
SARB
South African Reserve Bank
SARS
South African Revenue Service
SA-TIED
Southern Africa – Towards Inclusive Economic Development
SEIFSA
Steel and Engineering Industries Federation of Southern Africa
SIT (account)
services, income and transfers (account)
S&P
Standard & Poor’s
Stats SA
Statistics South Africa
SVAR
standard vector auto-regression
UK
United Kingdom
ULC
unit labour cost
US
United States
USA
United States of America
VIX
Volatility Index
WEO Update
World Economic Outlook Update
WP
Working Paper