South Africa's inflation picture has improved significantly in recent months, but rising oil prices and higher fuel costs are threatening to reverse some of that progress as the South African Reserve Bank (Sarb) prepares for its next interest rate decision next week.
Annual headline consumer inflation fell to 4.3% in July 2026 from 5.0% in June, according to Statistics South Africa (Stats SA).
The latest reading was an encouraging development for households and businesses, but economists warn that the inflation outlook could become more challenging during the fourth quarter of the year.
August inflation data will be released by Stats SA on September 23, with the Reserve Bank's Monetary Policy Committee (MPC) set to announce its interest rate decision later that day in the afternoon.
The key concern is the sharp increase in oil prices, with Brent crude trading around $107 a barrel.
South Africa is particularly vulnerable to higher international oil prices because the country imports most of its crude oil requirements.
Dr Lerato Ntuli, economist at Anchor Capital, said headline inflation had moderated to 4.3% in July, but core inflation remained sticky at 4.2%.
“Oil prices have risen substantially above the MPC’s July baseline, from roughly $90 to $107 a barrel,” Ntuli said.
Fuel prices raise second-round inflation risks
Higher fuel costs are already feeding into the inflation outlook. Petrol prices increased by R1.34 a litre in early September, while diesel rose by between R2.94 and R3.15 a litre.
Recent Central Energy Fund data also pointed to further increases in October, with an under recovery of about R2.96 a litre for petrol and R2.59 a litre for diesel at the time of the latest assessment.
Ntuli said this could cause headline inflation to accelerate during the fourth quarter.
“The diesel increases matter separately and with a longer lag because they raise freight and agricultural input costs that surface in food inflation with a two, to four-month lag,” she said.
The impact could therefore extend beyond the price motorists pay at the pumps, with higher transport and agricultural costs potentially filtering through to food and other consumer prices.
South Africa's external position is also beginning to reflect the impact of higher oil costs. The country's current account moved into a deficit of 2.6% of GDP in the second quarter, compared with a surplus of 2.3% previously. Crude import values increased sharply, while the goods surplus declined.
Ntuli said the pressure on the rand could also increase if the oil shock persists, potentially making imported goods more expensive.
“The scope for the Bank to look through a supply shock is much narrower than the Fed’s,” she said.
Inflation expectations support a pause
The inflation outlook is not entirely negative, however.
Johann Els, Chief Economist at PSG Financial Services, said the latest inflation expectations survey from the Bureau for Economic Research at Stellenbosch University was encouraging.
Household inflation expectations for the next 12 months fell from 6% in the second quarter to 4.9% in the third quarter, the lowest level in about five years.
Five-year household inflation expectations also declined from 9.1% to 8.3%.
Els said the decline was significant because inflation expectations can influence wage demands and ultimately contribute to future price pressures.
“This was a very positive inflation expectations survey,” Els said.
He believes the Reserve Bank could keep interest rates unchanged at the September meeting, arguing that the improvement in inflation expectations could give the central bank room to look through what he views as a potentially temporary oil shock.
“The fact that inflation expectations have come off, that's a key part of this argument,” Els said.
Economists split over September hike
However, other economists see a greater risk of another rate increase.
KPMG lead economist Frank Blackmore expects the Reserve Bank to raise the repo rate by 25 basis points, citing persistent inflationary pressures and the increase in oil prices.
“I think we’ll see action by Sarb next Wednesday that will result in an additional 25 basis point increase,” Blackmore said.
He warned that if geopolitical tensions and disruptions around the Strait of Hormuz continue, further increases could potentially follow before the end of the year.
For South African consumers, the immediate concern is whether the recent improvement in inflation can withstand the renewed pressure coming from fuel and transport costs.
The August inflation figures will therefore provide an important indication of whether the decline to 4.3% in July represents a sustained improvement or the low point before higher energy costs begin filtering through the economy.
With the Reserve Bank's inflation target remaining central to monetary policy, the September decision will be closely watched by households, businesses and financial markets.
ashley.lechman@nationalmg.co.za