Inflation in South Africa has landed squarely on the South African Reserve Bank’s (SARB’s) new target of 3%, but interest rate cuts next week are unlikely due to the war in the Middle East.
Consumer prices increased 3% year-on-year, down from 3.5% a month earlier, which was below the median estimate of 15 economists in a Bloomberg survey of 3.1%.
Although the latest data is exactly in line with the SARB’s 3% target, it is unlikely to change the repo rate from its current level of 6.75% despite optimism at the start of the year.
Officials need to assess the fallout of the US-Israel war on Iran, which has led to energy prices surging.
Oil prices have jumped more than 40% since the fighting started on February 28, with Brent crude trading at over $100 a barrel, while the rand has also weakened sharply against the dollar.
Central Bank Governor Lesetja Kganyago said South African inflation was more influenced by currency weakness than by oil prices.
Investec Chief Economist Annabel Bishop said that the lagged effects mean that fuel price changes from the war will only be seen in April’s inflation figure.
The petrol price dropped by 65 cents per litre in South Africa in February, adding to the downward pressure on inflation.
However, April is set for a R4.74 per litre increase in petrol prices and a R7.73 per litre rise in the diesel price.
Bishop said that the state may temporarily absorb some of these costs where it can do so.
She added that consumer price inflation is forecast at 3.2% for Q1 2026, but will likely reach close to 4.0% in Q2 as fuel prices increase in the country.
From an interest rate perspective, markets (as reflected in the forward rate agreement curve) expect the SARB to leave interest rates unchanged this month, which aligns with Investec’s view.
The SARB’s Monetary Policy Committee (MPC) is scheduled to meet on Thursday, 26 March 2026.
With reporting from Bloomberg
