South Africa's economy put further price pressures on consumers this past week after the South African Reserve Bank (Sarb) hiked the repurchase rate (repo rate) with predictions of inflation spiking higher in the coming months as fuel price increases also loom for October.
South Africa’s annual consumer inflation rose to 4.4% in August from 4.3% in July, while the consumer price index (CPI) was unchanged month-on-month.
This was according to data released by Statistics South Africa (Stats SA) released this past Wednesday, which also showed that food and non-alcoholic beverage inflation rose to 1.1% from 0.9%, while fuel inflation continued to ease.
Consumer inflation is a broad concept referring to the overall rise in the cost of living. CPI refers to the prices of a basket of consumer goods and services typically purchased by households.
Professor Waldo Krugell, an economist at North-West University Business School, said the key issue was whether price pressures were spreading beyond fuel.
“The thing to look for is price pressure beyond fuel prices, and there is still little evidence of that,” he said. “Goods inflation is slightly down from July. Services inflation is slightly up, but the month-on-month changes are mostly zero.”
Krugell said the economy appeared to be moving into an adverse scenario, with oil prices above $100 (R1625) a barrel and no clear end to the conflict in the Middle East.
Geopolitical tensions see Sarb increase interest rates
Reserve Bank Governor Lesetja Kganyago on Wednesday announced the MPC's unanimous decision to hike the repo rate by 25bps.
This means the repo rate is now at 7.25%, which takes the prime lending rate from 10.50% to 10.75%.
The increase means consumers with variable rate home loans, vehicle finance and other interest-bearing debt will face higher monthly repayments.
Debt Rescue CEO Neil Roets said the latest increase was another significant blow for households already under severe financial pressure.
"We at Debt Rescue are particularly concerned about the cumulative impact on consumers, because this increase comes at a time when household budgets are already being squeezed by elevated transport, housing, utilities and other essential living costs," Roets said.
Roets added that for many households, even a relatively small increase in borrowing costs can have a meaningful impact because there is little room left in monthly budgets to absorb additional expenses.
Kganyago said the central bank had raised its near-term inflation forecasts because of higher fuel prices, with an average fuel price under recovery of R2.83 per litre.
"Headline inflation will likely be above 5% later this year and early next year, before slowing as the fuel shock recedes. We currently expect inflation to be back around 3% towards the end of 2027," Kganyago said.
He said food inflation was currently at its lowest level since 2010, supported by strong harvests and a levelling off in meat prices following the outbreak of foot and mouth disease.
However, the broader global environment remains a concern.
"The global economic environment remains challenging and uncertain. Since our last meeting, the Middle East conflict has escalated further. Not much oil is getting through the Strait of Hormuz. Meanwhile, oil exports from Saudi Arabia are being interrupted by fighting in Yemen," Kganyago said.
He added that the Russia Ukraine war was continuing to affect refinery capacity and food exports through the Black Sea.
"These geopolitical events add up to a large, negative and persistent global supply shock, creating additional inflationary pressures," Kganyago said.
KPMG lead economist Frank Blackmore said geopolitical tensions and the resulting energy supply shocks were among the main factors behind the Reserve Bank's decision.
Blackmore said these supply shocks could create second round effects, where higher prices begin feeding into wage demands and broader inflation.
"The supply shocks will be responsible for second round effects, meaning, besides the direct effect of an increase in prices, it starts to enter labour markets through inflation and that becomes more persistent," Blackmore said.
Expected fuel-price increase
South African motorists are facing another painful fuel price increase in October, even as Brent crude retreated from recent highs and the global oil market shows tentative signs of easing.
On Friday, the price of Brent crude remained elevated at $106.21 per barrel.
Central Energy Fund data points towards increases of more than R2 a litre for both petrol and diesel from October 7.
The direction of oil prices over the coming weeks will be closely watched, but for households and businesses, the October increase is already set to deliver another significant blow to transport costs.
Construction a bright light
One of the few positives from this past week came from South Africa’s construction sector as it recorded a 5% quarter-on-quarter rebound in the second three months of 2026, while employment rose by 95,000 year-on-year, according to the Afrimat Construction Index (ACI).
The index outperformed the economy after South Africa’s GDP contracted by 0.2% in the second quarter. The index was released last Monday and compiled by economist Dr Roelof Botha, Economic Advisor to Betterbond, on behalf of mining and industrial minerals group Afrimat.
Botha said the ACI increased by 0.7% year-on-year, compared with GDP growth of 0.9% over the same period.
“Even though the year-on-year increase of 0.7% was marginally lower than the 0.9% increase in GDP, it is encouraging that employment in the construction sector has increased by 95,000 since the second quarter of 2025,” Botha said.
He said the employment increase was significant against the background of a year-on-year decline in South Africa’s total employment during the quarter.
The ACI is expressed in real terms, meaning it is adjusted for inflation.
ashley.lechman@nationalmg.co.za