Inflation spike, but rate relief may be near

• May inflation climbed to 4.5%, driven largely by fuel costs and transport inflation.
• Food inflation eased to 1.9%, helping cushion consumers from broader price pressures.
• John Loos expects one final July rate hike before the SARB pauses for the remainder of 2026.

Inflation rises, but the outlook is improving

South Africa's inflation picture deteriorated in May, but according to independent economist John Loos, the near-term outlook for inflation and interest rates has actually become more encouraging.

Consumer price inflation accelerated to 4.5% year-on-year in May, up sharply from 4.0% in April, mainly due to a spike in fuel prices and transport costs.

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Despite the increase, Loos believes the latest inflation data should not be viewed in isolation. "While the May CPI inflation rate looks significantly worse than April, looking ahead the near-term outlook for inflation and interest rates appears brighter of late," says Loos.

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Headline inflation remains well below the peak levels experienced in recent years, with the prime lending rate currently sitting at 10.5%, down from the highs of the previous tightening cycle.

Transport inflation drives the surge‍

Transport costs were the biggest contributor to the rise in inflation.

The transport component increased its contribution to overall CPI from 0.7 percentage points in April to 1.3 percentage points in May, accounting for much of the jump in headline inflation.

Transport inflation accelerated to 9.4%, while the fuel component surged by a massive 28.7% year-on-year.

The increase followed steep fuel price hikes at the beginning of May, when petrol prices rose by more than R3 per litre and diesel prices by more than R6 per litre.

Housing and utilities remain a major pressure point

While fuel prices grabbed the headlines, housing and utilities remained equally important inflation drivers.

The category, which carries the largest weighting in the CPI basket, contributed 1.3 percentage points to the overall inflation rate and rose by 5.3% year-on-year. Residential rental inflation remained relatively stable:

• Actual rentals: 4.0%
• Owner-equivalent rentals: 3.9%

However, utilities continue to place pressure on household budgets.

• Electricity inflation: 9.4%
• Water supply and municipal services inflation: 6.9%

These administered prices remain among the biggest contributors to inflation outside of transport.

Restaurants and accommodation inflation stays elevated

After transport, the strongest price increases among the major CPI categories came from:

• Restaurants and accommodation services: 5.8%
• Insurance and financial services: 5.7%
• Education: 5.4%

The figures suggest that discretionary spending categories continue to face upward pricing pressure despite weaker consumer demand.

Food inflation brings welcome relief‍

One of the brightest spots in the inflation data remains food prices.

The Food and Non-Alcoholic Beverages CPI eased to 1.9% in May, down from 2.9% in April.

This moderation comes despite concerns surrounding rising diesel prices and fears that Middle East tensions could disrupt fertiliser supplies. 

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‍"Thankfully, the all-important Food and Non-Alcoholic Beverages CPI showed moderate inflation of 1.9% in May," notes Loos.

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He cautions that the impact of higher transport costs and global supply disruptions will need to be monitored in coming months, but for now, food inflation remains contained.

Implications for consumers and the economy

Loos believes rising inflation and higher interest rates are beginning to squeeze household disposable income.

He expects slower growth in consumer spending during 2026, particularly in:

• Durable goods such as motor vehicles, furniture and appliances.
• Semi-durable spending, including clothing.
• Leisure and holiday expenditure.
• Credit-driven home purchases.

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"Luxury and non-essential spending has likely been seeing some slowing growth, along with low-frequency, postpone-able purchases," says Loos.

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The combination of rising prices and higher borrowing costs is expected to slow overall household consumption growth from the strong 3.6% growth achieved in 2025.

July rate hike likely, but possibly the last‍

Loos expects the South African Reserve Bank to deliver one final 25 basis point increase at its July Monetary Policy Committee meeting.

However, he believes the current tightening cycle may then come to an end.

Much depends on developments in the Middle East and global oil prices. ‍

"I believe there is a very strong political motivation for the US to move to end the Iranian conflict, given the approaching mid-term elections," says Loos.

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He notes that oil prices have already retreated in recent days as markets increasingly anticipate easing tensions. According to Central Energy Fund data, fuel prices could even decline in early July.

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"While the SARB will likely still be concerned with second-round effects from fuel price inflation at its July MPC meeting, thereafter I expect an improved global inflation environment to bring rate hikes to an end for the year," says Loos.

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Inflation headwinds may soon ease

May's inflation jump was largely fuel-driven rather than broad-based, and encouragingly, food inflation remains subdued while global oil prices are showing signs of retreat.

Although consumers may have to endure one more interest rate increase in July, the bigger picture appears far less threatening than it did just weeks ago.

For South African households, businesses and property investors, the message from John Loos is increasingly one of cautious optimism: the inflation scare may not be over, but the worst of the pressure could soon be behind us.

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