The latest inflation figures suggest that South Africa’s period of low inflation may be rapidly coming to an end, with growing pressure on the Reserve Bank to make a difficult decision on interest rates next week. Statistics South Africa confirmed on Wednesday that consumer price inflation surged to 4.0% in April. Inflation stood at 3.5% in January before dropping to 3% in February and edging slightly higher to 3.1% in March. The overall inflation rate for 2025 was 3.2%, the lowest level in 21 years. Inflation was last at 4% or higher in August 2024. According to Thys van Zyl, Chief Executive Officer of Everest Advisory Services (Pty) Ltd (FSP 49495, CAT I), inflation now appears to be moving away from the Reserve Bank’s preferred 3% target.
“The impact of geopolitical tensions and rising energy prices is now beginning to filter more clearly into domestic inflation. We previously warned that the full impact of the conflict in the Middle East and other global tensions had not yet been fully reflected in South Africa’s inflation data. The latest figures suggest that this pressure is now working its way through the economy at a faster pace.”
The biggest contributors to the rise in inflation were housing and utilities, transport, as well as insurance and financial services.
“Transport in particular is now starting to play a bigger role, which is not surprising given the sharp increase in fuel prices in recent months. Higher fuel costs ultimately filter through to almost every part of the economy, from food prices to logistics costs.”
Fuel prices have recently risen sharply due to higher international oil prices and ongoing geopolitical uncertainty, particularly in the Middle East.
“The world remains extremely sensitive to energy prices and supply risks at the moment. As long as geopolitical tensions persist, it will be difficult for inflation to quickly return to the lower levels seen earlier this year.”
According to Van Zyl, the latest inflation figures place the Reserve Bank in a difficult position ahead of next week’s interest rate decision.
“The Reserve Bank will have to tread very carefully. Inflation is now moving away from the 3% level it prefers, while global inflation risks are also increasing. This reduces the scope to simply keep interest rates unchanged indefinitely.”
“When fuel, transport and utility costs rise, it ultimately starts fuelling broader inflation. This is exactly the kind of pressure central banks remain cautious about.”
Van Zyl warns that South African households remain under increasing financial pressure.
“Consumers are currently being hit from multiple sides – higher food prices, more expensive fuel, rising transport costs and still relatively high interest rates. This places further pressure on household budgets and financial resilience.
“If global energy prices remain elevated and geopolitical tensions persist, inflation could rise further in the coming months.”
He adds that the international environment remains highly uncertain.
“For nearly seven years, the world has moved from one crisis to the next – from Covid-19 to the war in Ukraine and now the Middle East. These global disruptions continue to pose significant risks to inflation, economic growth and interest rates worldwide.”
Van Zyl believes next week’s interest rate announcement will likely provide an important indication of how concerned the Reserve Bank is about the latest inflationary pressures.
“The biggest question is no longer whether inflation is starting to rise, but rather how sustainable this upward pressure will be and how the Reserve Bank will respond to it.”
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Author: Sya Potgieter from https://everestwealth.co.za/ on behalf of Everest Wealth.
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