The good-time start to the year is over, with economists warning of massive energy price hikes next month that will drive inflation higher, potentially trigger interest rate hikes, and place a huge damper on economic growth.
The PayInc Net Salary Index, which tracks the nominal net salaries of an estimated 2.1 million salary earners in South Africa, increased slightly in February 2026, signalling a resilient start to the year.
However, the escalating US-Israel-Iran conflict has created uncertainty, with businesses and salary earners likely to face increasing pressure in the months to come, the group said.
The index shows that the average nominal salary stabilised in the first two months of the year, hitting R21,550 in February (up 0.1% from January).
This positive outlook, however, has been disrupted by the outbreak of the US-Israel-Iran conflict on 28 February.
“While the full impact of the war is unclear, it is expected to have ripple effects on both global and local economies,” said Elize Kruger, Independent Economist.
“Even if the conflict is short-lived, it is likely to place pressure on economic growth, inflation and household finances in the months ahead.”
With consumer inflation in a moderate upward trend since early last year, the PayInc Net Salary Index declined by 1.2% in real terms in the first two months of the year.
Still, consumer inflation reached a sweet spot in February, with both the headline and core inflation rates at 3%, in line with the South African Reserve Bank’s (SARB) newly adopted inflation target.
“Unfortunately, this will last for only a short duration, as the expected spike in fuel prices in early April will likely derail the moderate inflation outcome previously envisaged,” said Kruger.
On the assumption that the petrol and diesel prices will increase by R6.67/l and R11.22/l, respectively, headline CPI is forecast to increase to 4.5% in April, from 3.1% in March.
“Given the extent of these increases, the probability that these could trigger a widespread upward adjustment in prices across the economy is very high – but this is also dependent on how long fuel prices remain at elevated levels,” Kruger said.
Get ready for tough times
PayInc noted that a full-blown secondary impact of higher energy prices could lift consumer inflation to average around 4.4% in 2026, compared to the pre-war forecast of about 3.4%.
This is an undesirable outcome for the Reserve Bank, which recently adopted a 3% inflation target with a tolerance band of 1%.
Worse still, interest rate hikes could therefore be on the cards in a few months’ time.
However, the Monetary Policy Committee will likely keep interest rates unchanged at its meeting this Thursday (26 March), awaiting clarity on the duration of the conflict – and thus of higher energy prices.
“The worsening inflation scenario will hit the purchasing power of salary earners, likely sustaining negative net salary growth in real terms, for the foreseeable future,” Kruger said.
“Given the importance of consumer spending as a growth driver in the South African economy, the broader economy will take a hit as well.”
Carpe Diem Research has revised its forecast for economic growth in 2026 to 1.1%, down from 1.6% previously.
“This economic outlook is not conducive to comfortable employment conditions,” Kruger said.
With uncertainty and volatility impacting economic activity and investment growth, it also plays havoc with planning and risk-taking.
“These days, geopolitical events, trade uncertainties and political reshuffling are the norm, and companies need to be resilient to withstand multiple challenges,” the economist noted.
“The U-turn in economic expectations for 2026 does not bode well for company prosperity and labour market prospects. Already, company prosperity as measured by nominal growth in gross operating surplus has been moderating in recent years.”
The uncertainties about the eventual impact of the war on the local and global economy are likely to loom for some time.
As a result, the South African economy is likely to enter a period where companies will most probably retreat to a conservative mode, taking a wait-and-see approach, and postpone major decisions until there’s more clarity.
“This could have a negative impact on employment prospects and earnings expectations in the remainder of 2026,” Kruger said.
