So, South Africa has decided to make things cheaper. On purpose. In a move that feels both blindingly obvious and incredibly ambitious, the government is lowering its inflation target.
The old goal was to keep price increases between 3% and 6%. The new goal is to nail it at 3%, full stop.
Think of it like this: for years, the government said it was okay if your grocery bill went up by as much as R6 every year for every R100 you spent. Now, it’s saying it will try to limit that increase to just R3.
The man in charge of the country’s wallet, Minister of Finance Enoch Godongwana, believes this is the key to fixing a lot of what ails South Africa.
“This decision is about creating a stable economic environment where households can thrive and businesses can invest with confidence,” Godongwana said.
In short, the plan is to make life less expensive so that people and companies feel better about spending and growing.
The logic is straightforward, almost like managing a family budget. If the price of bread, fuel, and electricity stops climbing so quickly, people will have more money left over for other things.
“Lower inflation means lower prices for goods and services, and that’s what we need right now,” Godongwana explained.
“Cheaper prices mean more money in people’s pockets. This is about giving South Africans the breathing room they need to live better lives.”
Government not setting prices
For businesses, the theory goes, predictability is everything. If a company knows that costs aren’t going to suddenly spiral, it is more likely to hire new people, buy new equipment, and build new factories.
“This is about creating the conditions for businesses to thrive,” the minister said. It is an attempt to replace uncertainty with confidence.
This is where it gets interesting. The government is not directly setting prices. Instead, it is changing the official goal for the South African Reserve Bank, the institution that controls interest rates.
This was not a solo decision. Godongwana stressed it was a “team effort” with the Reserve Bank, the president, and the Cabinet.
The Reserve Bank’s main tool is the interest rate. When inflation is high, the bank typically raises interest rates.
This procedure makes borrowing more expensive, which cools down spending and, in theory, slows price increases. This action serves as a brake pedal for the economy. The problem is, hitting the brake also slows down growth.
The new, lower inflation target signals that the Reserve Bank should be more aggressive in keeping prices stable.
The hope is that by promising long-term stability, the bank might not need to slam on the brakes as often or as hard.
The target will be gradually implemented over a two-year period, and the central bank will be held accountable if it fails to meet the target.
Forces outside of SA’s control
This all sounds very sensible. But the world does not always cooperate. The article points out that South Africa’s economy is facing “global headwinds, including trade tensions, geopolitical uncertainty, and disruptions to supply chains”.
These are forces entirely outside of the government’s control. A shipping crisis in the Red Sea or a drought in a food-producing region can push prices up, regardless of what the inflation target is.
There is another, more subtle problem. The government itself benefits from inflation. As prices rise, so do the amounts collected from taxes like value-added tax.
If inflation is lower, government revenue growth could slow down. Godongwana acknowledged this, saying: “We’re prepared to make the tough decisions needed to ensure our policies work for the benefit of all South Africans.”
This is a polite way of saying that either spending must be cut or other taxes must be raised to make up the difference—a politically painful tightrope to walk.
The new target is not happening in a vacuum. It is one part of a broader, and arguably more important, plan to fix the foundations of the economy.
The government is focusing on “stabilising public finances, implementing reforms, improving government efficiency, and investing in infrastructure”.
On infrastructure, Godongwana announced a new bond to raise at least R15-billion. “We’re shifting our focus from consumption to investment. Infrastructure is the engine of our economy,” he said.
This is a direct effort to rebuild the crumbling bones of the country—schools, clinics, water pipes—which, if successful, would make the economy more productive.
New target a bold bet
The government is projecting a wave of optimism. Economic growth is expected to more than double to 1.2% in 2025. Perhaps most significantly, the relentless rise in public debt is finally forecast to stop.
“For the first time since the 2008 financial crisis, public debt is expected to stop growing as a percentage of GDP [gross domestic product],” the minister said. “This is a major milestone.”
The new inflation target is a bold bet. It is a bet that the short-term pain of potentially higher interest rates is worth the long-term gain of stability and confidence. It is a bet that the Reserve Bank can precisely manage a complex economy in a volatile world.
And it is a bet that the other pieces of the puzzle—infrastructure spending, fighting corruption, stabilising debt—will all fall into place at the same time.
As Godongwana put it: “This is about choosing a better future for South Africa.”
The message is clear: after years of struggling, the government believes it has a coherent plan.
The entire country will now watch to see if this simple-sounding theory can survive a complicated reality.
