Opinion by economist Professor Andrew Phiri, Department of Economics, Nelson Mandela University
Explaining the technical details of the SARB inflation target to non-economists (or people who have not done first year tertiary economics) often ends in confusion, so I tend to use the following simple metaphor. Picture the Reserve Bank as a person balancing a metrestick (inflation) at arm’s length on their fingertips (interest rates).
When the stick begins to lean forward and prices rise, to restore balance the hand must push forward - this equates to increased interest rates. When the metrestick leans back, the hand retreats, lowering interest rates. The goal is always to keep the stick steady at its centre point, which is the inflation target.
With its new and lower target, the SARB has shifted that centre point. The metre stick is no longer held at arm’s length but pulled closer to the chest. The space for movement is smaller. The balancing act becomes tighter, sharper and far less forgiving. That is what the 3% percent inflation target demands.
The Good
The first good is the ‘timing’. Inflation has been falling after the shock of the Ukraine-Russia conflict pushed it to above 8%. From 2022/23 the metrestick was already tilting backward. By lowering the target just as inflation was dropping to around 3% and allowing interest rates to ease, the SARB managed to catch the stick smoothly without slamming the brakes on the economy.
The second good is that a lower target means lower inflation and lower interest rates over time. This offers real relief to households struggling with the cost of living and makes borrowing less punishing.
For 25 years the wide 3-6% range allowed essentials to climb painfully. Bread that cost less than R3 in 2001 now sits over R17. In countries with tighter inflation tolerance, such as the United States and the United Kingdom, food prices rose far less sharply. Lowering the target is a direct protection for poorer people whose budgets are mainly used for acquiring basic needs such as food, electricity and transport.
The third good is often ignored and less understood; and that is ‘expectations’. It is important that the Reserve Bank remains credible by making people trust that they can keep inflation low. When households and businesses do not trust this, they act in ways that push prices up. For example, if people expect prices to increase, they will panic-buy goods which causes prices to rise. However, when they trust the Reserve Bank to keep inflation low, they behave more calmly, and inflation becomes easier to control.
Stellenbosch University’s Bureau for Economic Research (BER) has been measuring these expectations since 2001 across households, businesses, unions and analysts. Their latest findings show confidence that 3% is possible. Science and sentiment seem aligned for now.
These are the goods of the new target. But there is another side to this story.
The Bad
The uncomfortable truth is that South Africa is not growing fast enough for a 3% target to be effortless. Countries that hold inflation at 2 or 3 percent usually grow at about 4 percent (e.g. India and the US). South Africa’s growth is nearer 2 percent. Weak growth makes a strict target harder to maintain. It also makes it more likely that in the event of higher inflation, interest rates will stay high for longer, which strains investment, borrowing and spending. The target is ambitious, but the economy beneath it is sluggish.
The Ugly
Then comes the global chaos factor. The world has become unpredictable, especially with political leaders like Donald Trump who thrive on shock and confusion. A sudden geopolitical disruption can push inflation from 3 percent to 6 or even 10 percent in a short time. This happened in the early stages of the Ukraine-Russia war, in early 2022. If that happens again, the SARB would be forced to raise interest rates more aggressively than normal. And if the Reserve Bank is unable to bring inflation down to its target, then confidence in the Reserve Bank would wobble. When that confidence slips, inflation slips with it, and the economy will eventually slip as well.
A frightening example is that of Brazil which similarly lowered their target to 3% last year. This year, inflation in Brazil climbed from about 4% in May 2025 to more than 5% by October 2025. Even though this increase was not large, it was above its new target and the Brazilian Reserve Bank had to hike interest rates 7 times in the last 6 months, doubling rates from 7.5% to 15%. Despite these efforts inflation in Brazil still sits above its target. Metaphorically, the stick keeps tilting forward and the hand has been swinging harder and harder and still cannot balance the stick.
There is another ugly truth. A low inflation target is supposed to help poorer households, but if it misfires, they suffer most. Many poorer households do not know what the SARB does or how its decisions affect their lives. They are not equipped to shield themselves from higher borrowing costs. If the target fails, the very people it is meant to protect will pay the greatest price.
Final Thoughts
We can only hope that a sudden global shock, a dip in confidence or another surge in prices doesn’t turn order into chaos. So we will keep our fingers crossed and hope that expectations stay steady, global winds behave and the metrestick, held so close to the chest, remains upright.