Economists remain hopeful that the end of the period of interest rate hikes is near
For weeks, economists cautioned that the economic fallout from the war in the Middle East would reach South Africans later rather than sooner. That moment appears to have arrived, but economists remain hopeful that the end is near.
Data from Statistics South Africa (Stats SA) show that annual inflation accelerated to its highest level in almost two years in May, with surging energy prices, fuelled by the conflict, pushing up the cost of living.
Stats SA on Wednesday said consumer price inflation (CPI) was 4.5% in May 2026, up from 4.0% in April 2026. The CPI increased by 0.7% month-on-month in May 2026.
Inflation lower than expected
Elna Moolman, Standard Bank Group head of South Africa Macroeconomic Research, said inflation was marginally lower than expected in May. A Bloomberg survey of 18 economists estimated inflation at 4.7%.
CPI is the primary tool used to measure inflation. It works by tracking the prices of a representative “basket” of everyday goods and services, such as food, housing, transport and healthcare, over time to calculate how much the cost of living has changed.
“The downside surprise largely emanated from food prices, which stayed flat during May,” said Moolman.
Food inflation in May
Food inflation was 1.6% on a year-on-year basis. Moolman said this provides some relief to consumers amid the steep increase in fuel prices in recent months.
However, she noted that weak food inflation pressure largely reflects declines in meat and fruit prices in May.
It is worth noting that food prices are still rising, but at a slower rate than before. It also does not mean that food has become cheaper; rather, the pace at which households’ grocery bills increase has simply begun to normalise.
Main contributors
According to Stats SA, the main contributors to the annual inflation rate were:
- Housing and utilities (5.3% and contributing 1.3 percentage points);
- Transport (9.4% and contributing 1.3 percentage points);
- Insurance and financial services (5.7% and contributing 0.6 of a percentage point)
In May 2026, the annual inflation rate for:
- Goods was 4.4%, up from 3.4% in April 2026;
- services was 4.7%, up from 4.6% in April 2026
“This data, alongside the decline in oil prices in response to the imminent signing of an interim peace deal between the US and Iran, means that the upside risks to the inflation trajectory have subsided,” said Moolman.
“It also increases the likelihood that the Reserve Bank will not have to hike interest rates further.”