Inflation edged up slightly in March, staying within reach of the central bank’s target, but is set to start accelerating as a tight global oil supply pushes up fuel and, by extension, other consumer prices.
Stats SA’s report on Wednesday came a day after the South African Reserve Bank warned in its monetary policy review that the near-term inflation outlook has deteriorated significantly due to the Middle East war, which has disrupted oil flows through the Strait of Hormuz
The consumer price index (CPI) rose 3.1% year on year in March, ticking up from 3% in February and driven mainly by the housing and utilities component. Six of the 13 categories in the basket recorded higher annual rates.
The March data was collected before the sharp fuel price increases introduced on April 1, Stats SA chief director for price statistics Patrick Kelly said. The impact of these higher prices on inflation will be included in the April report due to be published on May 20.
“The full impact of the global oil price shock, with higher fuel and Road Accident Fund levies, adjusted carbon taxes and higher Eskom tariffs implemented on April 1, will only be seen in subsequent months,” said Raymond Parsons, economics professor at North-West University’s Business School.
“It will also be necessary to assess later what further steps might be taken by the government to mitigate the negative impact of the global energy crisis on the cost of living, fuel and food security.”
Earlier this month, the government said it would, until May 5, reduce the general fuel levy built into the pump prices of petrol and diesel by R3 per litre to mitigate the impact of the steep increases.
In addition to the general levy, the government also charges a carbon fuel levy aimed at reducing greenhouse gas emissions and a Road Accident Fund levy intended to pay compensation for people injured or killed in road accidents.
It is unclear whether it will extend the relief on the fuel levy beyond May 5, but even if it does, indications point to another R2 per litre and R7 per litre increase, respectively, in the petrol and diesel prices in May.
“Energy inflation remains the most prominent upside risk in the near term, with the Middle East conflict pushing up the cost of petroleum-related products while Eskom’s latest electricity tariff increases filter through to the economy,” FNB senior economist Koketso Mano said.
Limited fiscal buffers narrow the scope for further or prolonged state relief, she added.
“Furthermore, we should experience a slower pace of disinflation following this shock, as authorities seek to recoup foregone levies and suppliers attempt to recoup compressed margins.
“Ultimately, while we may not see a speedy passthrough of higher input costs to consumers, second-round pressures mount the longer the cost of energy remains elevated,” Mano said.
In its monetary policy review the Reserve Bank said its baseline forecast has headline inflation peaking at 4% in the second quarter of 2026 before easing back to its 3% target by late 2027. This is provided the Middle East conflict is not protracted.
Economists are now expecting the Bank to raise interest rates twice this year to keep inflation contained, a reversal from the start of the year, when they were pencilling in at least two reductions in the main policy rate, which was kept on hold at 6.75% last month.
A less accommodative monetary policy, added to higher prices, is likely to dampen consumer demand this year after last year’s strong performance, driven partly by withdrawals from the two-pot retirement system.
Stats SA said annual growth in retail sales slowed to 1.6% in February from an upwardly revised 4.4% in January, with further easing on the cards in the months ahead as increased fuel costs weigh on household budgets.
The miscellaneous category — which includes online stores and retailers specialising in jewellery, stationery and sports goods — was the most significant positive contributor, while food and beverages registered the largest decrease, shrinking by 5% year on year.
Month on month, seasonally adjusted retail trade sales contracted 1% in February, having risen 0.9% in January after a 0.5% dip in December.
Last year’s 3.7% overall growth in retail spending was boosted partly by income from the two-pot system — which allows South Africans to make partial withdrawals from their retirement savings if needed — as well as growth in real income due to lower inflation.
“Those factors are not repeating this year, and when we see the impact of the fuel price, it will make things worse,” Stanlib senior economist Kevin Lings said.
“I think this year you’re going to find that consumers go more into debt because they’re having to spend more money on the petrol price, and so they will tend to use a bit of credit to keep their consumption going.”
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