ECONOMIC OUTLOOK: SA inflation undershoots expectations in May, Sarb may pause rate hikes

One morsel of good news is food inflation, which remains subdued and for staple products such as maize meal in deflationary territory with prices falling – a welcome trend that could be reversed if the current El Niño becomes a “Godzilla event”.

By Ed Stoddard 17 Jun 2026 South Africa’s inflation rate rose to 4.5% in May, influenced by significant petrol price increases, yet still fell below economists’ expectations. (Photo: iStock / Getty Images)

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The bad news was that South African consumer inflation quickened in May to 4.5% from 4.0% in April, fuelled in large part by the big petrol hike that month.

The good news is that the print was much lower than economists’ forecasts of around 5.0%, raising hopes that the South African Reserve Bank (Sarb) may hold off from hiking interest rates again next month even with inflation well above its 3.0% target and the top of its 4.0% tolerance band.

“Lower oil prices suggest that inflation will peak at a lower level than we previously anticipated and imply that the Sarb may act with less urgency at its next policy meeting in July by holding, instead of raising, rates by 25 basis points,” said Jee-A van der Linde, Senior Economist at Oxford Economics Africa.

“SA’s fuel price outlook has improved after Iran and the US agreed to end the war and reopen the Strait of Hormuz. The geopolitical risk premium has unwound rapidly, with oil futures prices falling sharply. However, a meaningful recovery in transit will depend on both sides committing to the agreed deal.”

Investec Chief Economist Annabel Bishop said in a note on the data that “... a R2.65/litre cut for July is building. However, the latter will be reduced by the planned reversal of the general fuel levy cuts, with a further R1.50/litre increase for petrol prices from this source.”

The other morsel of good news from the read was food inflation, which remains subdued and for staple products such as maize meal in deflationary territory with prices falling – a welcome trend that could be reversed if the current El Niño becomes a “Godzilla event”.

“Annual deflation for cereal products deepened, dropping to -1.4% from -1.2% in April. Maize meal is 4.4% and brown bread 0.3% cheaper than a year ago,” Statistics South Africa (Stats SA) said in a statement.

“Meat inflation cooled in May, recording an annual increase of 7.3% compared with April’s 9.4%.”

Food inflation overall in May was 1.6%, its lowest level in 17 months, according to Stats SA data.

“Looking ahead, the medium-term risk is the forecast El Niño drought, but this may only affect the direction of 2027 food price inflation, as it affects the next season’s crop. For now, we are experiencing moderate food price inflation in SA,” noted Agbiz Chief Economist Wandile Sihlobo.

The bottom line is that the fallout from the Iran War has not fanned the flames of South African inflation as intensely as expected to date, and that improves the outlook on this front.

This may in part be testimony to the Sarb’s drive to anchor inflation expectations at its 3.0% target, and could also be a reflection of depressed demand in a slow-growth economy. With a possible end to the Iran conflict in sight, inflation may not reach the painful levels that were anticipated just a few weeks ago. DM

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