First Signs of Inflation Picking Up

Inflation appears to be well contained if you look at the latest figures from Statistics SA, but the knock-on economic effects of the Iran crisis are slowly becoming felt, and some commentators are warning of a possible sharp rise in the cost of living over the next few months.

About a week ago, StatsSA published its inflation figures for March. It reported that Consumer Price Index (CPI) inflation had risen to 3.1% in the 12 months to the end of March. This was slightly up from 3.0% in February. The annual rate for food and non-alcoholic beverages actually slowed in March, to 3.6% year-on-year from 3.7% in February and 4.4% in January. Transport remained deflationary, although less deflationary than in February, increasing year-on-year from −2.1% in February to −1.6% in March. However, the monthly increase for transport was 1.6%, driven by a whopping 20% jump in long-distance bus fares and a 14.3% increase in air fares.

But here’s the rub. StatsSA notes: “The CPI release for March covers data collected before the sharp fuel price increases that were introduced on 1 April. The impact of these higher prices on inflation will be included in the next CPI release that will be published on 20 May.”

In other words, it is taking some time for the effects of the worst disruption of the world’s oil supply in living memory to be felt by the consumer, but even if the crisis ended tomorrow and the supply was restored, the fallout is likely to be substantial.

One indicator is already pointing to tougher times for consumers. The Pietermaritzburg Economic Justice & Dignity Group’s April Household Food Basket shows the early impact of rising fuel prices. The Household Food Basket is based on average current supermarket prices around the country on a basket of basic goods.

Mervyn Abrahams, the PMEJD Group’s Programme Coordinator, reports that although food price inflation had eased over the past several months; the PMEJD April Household Food Basket shows a distinct shift upwards, by 2.3% month-on-month. “While our historical data shows moderate increases between March and April of each year, driven primarily by seasonal price fluctuations on some vegetables and fruit, meat and dairy, this month’s Household Food Basket increase of 2.3% suggests an early impact of increases in fuel prices on local food prices,” he says.

In the group’s monthly report, Abrahams points out the importance of diesel fuel to our economy. “The South African economy runs primarily on diesel fuel as an input. South Africa imports around 70-80% of its fuels: 66-67% of the diesel consumed in South Africa is imported as a finished product. Since 2020, South Africa’s domestic refinery capacity has declined substantially, with only two of the original six crude oil refineries operational. [Unlike petrol prices], diesel prices at the pump are not regulated, and may bring in unpredictability and instability for the economy,” he says.

This week National Treasury and the Department of Mineral and Petroleum Resources said that the R3/litre fuel levy relief implemented in March to ease pressures on consumers would be extended by a month, to 2 June, with an additional 93c relief for diesel. However, these relief measures would be phased out by July. From 1 July onwards, the general fuel levy for petrol will return to R4.10/litre and the levy for diesel will return to R3.93/litre.

In a recent article, “March CPI: The Calm Before the Energy Shock?”, Nolan Wapenaar, Head of Fixed Income and Co-Chief Investment Officer at Anchor Capital, says the March inflation data should be viewed as a “pre-shock snapshot, captured prior to a significant escalation in global geopolitical tensions. There is no Iran war or closure of the Strait of Hormuz reflected in this latest inflation print, the reason being that any material disruption to oil supply routes would need time to filter through to the petrol pump price locally and then into CPI.” 

Wapenaar notes that the SA Reserve Bank’s outlook on interest rates has shifted. “At its 26 March meeting, the SARB’s Monetary Policy Committee held the repo rate at 6.75%, adopting a more cautious stance amid rising uncertainty. The easing cycle has effectively paused, with risks now tilted to a delay in rate cuts and, in more extreme scenarios, potential tightening,” he says.

So where could inflation and accompanying interest rates end up? In its April 2026 Monetary Policy Review, the SARB, in its baseline forecast, shows CPI inflation peaking at 4% in the second quarter of 2026 and averaging 3.7% for the year, before easing back to its 3% target.

However, in a worst-scenario forecast, it said that if Brent crude prices remained above US$100/barrel, inflation could rise to 4.6% later this year, and remain above target until 2028. This would necessitate an increase in interest rates from the present policy rate of 6.75% to as high as 8% by the end of the year, decreasing thereafter.