Annual inflation is expected to have slowed in February, mainly due to base effects and a significant drop in the petrol price for the month.
The spike in oil prices driven by the war in the Middle East however points to price pressures in the months ahead which have all but extinguished expectations of a domestic interest rate cut any time soon.
Stats SA will release the latest inflation data on Wednesday and economists are predicting a second consecutive year-on-year slowdown to 3.1% in February from 3.5% in January, though consumer prices will have risen by a higher 0.5% during the month compared with 0.2% previously.
The annual easing will largely be underpinned by statistical base effects and the hefty 65 cents per litre decrease in the petrol price announced by the department of petroleum and mineral resources at the start of February.
“Moreover, food price inflation is likely to have remained contained, aided by favourable global prices during the month,” Investec economist Lara Hodes said.
“Going forward however, owing to the persistent war in the Middle East, a cut in interest rates by the SARB [SA Reserve Bank] in March is now not anticipated with elevated oil prices and a depreciating rand (posing) an upside risk to the inflation outlook.”
After the first meeting for 2026 of the SARB’s monetary policy committee in January, governor Lesetja Kganyago said inflation had probably peaked at 3.6% in December and would slow down from there. However the turmoil on global oil markets, which will propel domestic fuel prices higher, has likely put paid to that cautious optimism.
Fuel carries a weighting of just under 4% in the consumer price index basket, but the larger inflation driver is indirect, as transport costs flow through to food, logistics and manufactured goods, noted the economics and sustainability strategy team at PWC.
“Diesel is particularly significant given South Africa’s road freight dependency. The SARB faces a meaningful shift in its rate outlook — from a potential cut before the conflict to the possibility of a 25 basis point hike at the March 26 MPC meeting,” PWC said.
The professional services firm has drawn up three possible scenarios on the impact of global oil prices on domestic inflation. In the first, prices would be sustained between $100 and $120 a barrel, with inflation accelerating to 5%–5.8% by the third quarter of this year as a result.
In the second scenario, triggered by a credible ceasefire or diplomatic framework within two to four weeks, Brent crude could retreat towards $80–$85 a barrel, then towards $68–$72 by the end of April, which would result in local consumer inflation peaking at 4% to 4.2% in the second quarter before reverting towards the Reserve Bank’s 3% target.
The third — and worst — scenario, triggered by a prolonged closure of the Strait of Hormuz, could see inflation breaching 7%.
Also on Wednesday, Stats SA will release retail sales for January which are likely to show year-on-year growth of 2.4%, a slight moderation from 2.6% in December, according to economists at Nedbank.
They however noted that the war in Iran could lead to a global supply-side shock, “potentially disrupting supply chains and driving up oil and other commodity prices, which, in turn, could stoke inflation and force the central bank to reverse course” on interest rates.
Higher borrowing costs in the months ahead will obviously dampen consumer demand, with a negative impact on retail sales.
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