South Africa’s inflation accelerated to its highest level in two years in June, driven largely by rising transport costs, reinforcing expectations that the country’s central bank will raise interest rates again at its policy meeting on Thursday.
Data released by Statistics South Africa on Wednesday showed headline consumer inflation rose to 5.0 percent from 4.5 percent in May, marking the highest annual inflation rate since July 2024. On a monthly basis, the Consumer Price Index (CPI) increased by 0.7 percent.
The latest data means inflation has climbed by 1.5 percentage points in the first half of the year, moving further away from the South African Reserve Bank’s preferred three percent target and increasing pressure on policymakers to tighten monetary policy further.
According to the country’s apex agency, transport costs were the biggest driver of inflation, rising 12.7 percent year-on-year and contributing 1.7 percentage points to the headline rate. Housing and utilities increased 5.5 percent, contributing 1.3 percentage points, while insurance and financial services rose 5.9 percent, adding 0.6 percentage points.
Inflationary pressures also broadened across Africa’s largest economy. Annual inflation for goods accelerated to 4.8 percent from 4.4 percent, while services inflation rose to 5.2 percent from 4.7 percent.
The latest inflation data also comes as renewed hostilities involving the United States, Israel and Iran continue to unsettle global energy markets. Brent crude has climbed close to $90 per barrel, raising the prospect of higher imported inflation for African economies that rely heavily on fuel imports.
For South Africa, higher oil prices are feeding into transport costs and threatening to lift electricity, logistics and food prices, increasing the risk of broader inflationary pressures despite the recent ceasefire in the Middle East.
In May, the Reserve Bank raised its benchmark repo rate by 25 basis points to seven percent, its first increase since 2023, citing concerns that geopolitical tensions and rising energy prices could generate second-round inflation effects.
With inflation now at a two-year high, economists increasingly expect policymakers to deliver another 25-basis-point increase at tomorrow’s meeting to prevent inflation expectations from becoming entrenched.
Bank of America recently forecast the country’s inflation would continue to edge higher before moderating later in the year and expects the central bank to raise rates again this week before pausing its tightening cycle.
BusinessDay recently reported that more central banks are shifting back to a hawkish stance after months of holding or cutting interest rates as renewed inflationary pressures, driven partly by higher energy prices, begin to re-emerge
