Inflation edges up, but bigger price pressures still loom for South Africa

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While the rise from 3.0% was expected, with core inflation also edging higher to 3.2%, South Africans need to embrace for the full impact of global oil shocks, fuel and RAF levy increases, carbon-tax adjustments and higher Eskom tariffs from April. These will only filter through in coming months, reshaping the country’s cost-of-living outlook.

Says NWU Business School economist, Raymond Parsons, "It will also be necessary to assess later what further steps might be taken by government to mitigate the negative impact of the global energy crisis on the cost of living, fuel and food security.

"Adjusting to external economic shocks is never painless or easy. South Africa will be lucky if it escapes with a minor setback to growth and a temporary bout of inflation in 2026."

Inflation outlook risks

This week the South African Reserve Bank (Sarb) indicated that, barring further shocks, it currently anticipates that inflation will nonetheless stay within the 1% tolerance band of its new 3% target.

Some private-sector projections of the inflation outlook see it temporarily exceeding 4% in coming months, before receding back within the target range.

"Although there are now clearly upside risks to the inflation outlook in South Africa, the lower inflation target and ongoing fiscal consolidation have created resilience by reducing the country’s risk premium," Parsons said.

Inflationary expectations were also previously at the lowest level in years.

Parsons noted South Africa has a few more economic buffers at its disposal now than it had a couple of years ago. However, the dominant feature in all economic narratives and policy decision-making, whether global or domestic, is now that of highly elevated uncertainty, precipitated by the on-going Middle East conflict.

Rates hold cautious

On monetary policy, this follows the lead of many central bankers who, while becoming cautious about the likely upside inflation risks, have remained wary about suddenly raising interest rates, lest it unnecessarily damages economic growth.

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"The IMF managing director Kristalina Georgiova has indeed urged central banks to be vigilant, but not to rush into interest-rate changes, advising a ‘wait-and-see’ approach tailored to incoming data. Andrew Bailey, governor of the Bank of England, has expressed similar sentiments.

"Much depends on how long the conflict still lasts, where the global oil price eventually settles, and what the likely ‘pass through’ costs are in different national economies. On present economic evidence, therefore, the Sarb may not need to rush to judgement on whether interest rates should already be raised at its next meeting on Thursday, 28 May 2026," Parsons said.

Monetary policy is still somewhat in restrictive territory and South Africa has a vulnerable economic recovery to nurture. The Sarb remains data-driven and therefore needs to assess whether the ‘second-round effects’ that central bankers always fear are indeed emerging in the economy by the time the MPC meets.

"If so, the MPC will, of course, need to act in accordance with its chief mandate and maintain its credibility. However, the Sarb already enjoys strong credibility."

The IMF has also emphasised that central banks with high credibility can afford to consider a ‘wait-and-see’ stance for now.