Producer price inflation (PPI) slowed for a second consecutive month to an annual rate of 1.8% in February from 2.2% in January to reach the lowest level since July 2025, though sharply higher oil prices due to the war against Iran are likely to add upward pressure in the months ahead.
Most of February’s easing came from coal and petroleum products, which fell 8.9% in February after decreasing 4.1% in January, thanks largely to lower petrol and diesel prices, Stats SA said.
Producer prices were flat monthly after a 0.2% decrease in January.
However the US and Israel launched strikes against Iran on February 28 and the conflict has intensified as Lebanon and Gulf States, including Saudi Arabia, have been targeted by Iran in retaliation.
Investec economist Lara Hodes correctly predicted that the South African Reserve Bank would revise up its inflation outlook as the price of oil, a key driver of consumer and producer prices, has soared past $100 a barrel.
The Bank kept its benchmark repo rate at 6.75% on Thursday, citing upside risks to inflation.
“Moderate increases in petrol and diesel prices were announced in March, adding mild inflationary pressure during that month,” Hodes said in a note on Thursday.
“However, significant fuel price increases are building [for April] as a result of the conflict in Iran, which has led to a surge in the oil price and the depreciation of the rand.”
Aside from petroleum products, Thursday’s data shows inflation for grain mill products and the “starches, starch products and animal feeds” categories contracted 9.2% and 12.3% year on year in February, respectively.
The Agricultural Business Chamber of South Africa reported favourable weather conditions and a robust summer harvest in recent months, but warned that rising fuel prices “remain a major upside risk as they account for a substantial share of food product distribution costs”.
Higher fertiliser costs, also due to disruptions to shipping in the Strait of Hormuz, could further pressure local farmers into raising food prices in the coming months.
Economists at Nedbank now expect PPI to average 3.3% in 2026, up from their earlier forecast of 2.6%.
“The outlook has deteriorated sharply amid global price pressures stemming from the war in Iran,” they said in a note.
The combination of higher oil prices and a weaker rand has led to a sharp increase in the local oil price, driving up petrol and diesel prices.
In addition to the oil price shock, increases in the fuel levy announced in the national budget in February, amounting to a combined 21c/l come into effect in April.
“Taken together, these developments are expected to result in a sharp rise in average petrol and diesel prices from April onwards. Beyond pricing pressures, fuel rationing — particularly of diesel — are already disrupting harvesting in some areas,“ Nedbank said.
“Food inflation is expected to moderate, supported by lower global food commodity prices, strong domestic crop production, and some moderation in meat prices due to improving vaccination against foot-and-mouth disease.
“However, the downward pressure will be contained by transport and input costs. South Africa imports fertiliser from the Middle East, leaving supplies and prices vulnerable to further disruptions stemming from the conflict.
“Beyond food and transport, administered prices — particularly electricity and water tariffs — will exert upward pressure on production and operating costs.”
Further pressure is in store for consumers after the National Energy Regulator of South Africa approved an 8.76% increase in Eskom’s electricity tariffs.
“Should producer cost pressures persist and existing excess capacity be eroded, the pass-through to consumer prices is likely to increase,” Nedbank said.
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