The Reserve Bank might hike interest rates to control the prices of goods and services
The South African Reserve Bank (Sarb) might start to cut interest rates during the course of 2027. Picture: iStock
Consumer price inflation (CPI) for August 2026 was 4.4%, up from 4.3% in July 2026. This increase suggests that while there were no significant increases in food and services prices due to rising fuel prices, there is little room left for the South African Reserve Bank (Sarb) not to hike interest rates.
Statistics South Africa (Stats SA) released the figures on Wednesday, revealing food and non-alcoholic beverages (NAB) inflation increased for the first time in nine months, both the alcoholic beverages and tobacco and health indices declined month-on-month, and fuel inflation continued to ease.
Elna Moolman, Standard Bank’s group head of South Africa macroeconomic research, said the declining petrol prices in August helped to contain overall inflation; however, the increase in fuel prices in September, and the expectation that prices will also increase in October, point to a difficult time ahead for South Africans.
No pressure on inflation basket
“If we look at the rest of the inflation basket, however, we generally didn’t see much inflation pressure in August,” said Moolman. “This is a welcome indication that we’re not seeing the feared second-round inflationary impact of the significant increase that we’ve had in fuel costs this year.”
According to Stats SA, most food categories increased, with eight of the 19 items in the cereal products category registering higher rates. Most notably, white rice (-11.6% to -10.8%) and white bread (3.2% to 3.9%).
Pork prices also continued to increase, while beef prices remained in deflationary territory. Ham and bacon rose by 8.6% and pork by 6.6% in the 12 months to August. In contrast, beef prices declined over the same period, with stewing beef (5.3%), steak (3.9%) and mince (3.8%) cheaper than a year ago.
Inflation could go up further
Moolman said that, because of the massive increase in fuel prices in September and the forecast that October will also see another increase, the Sarb could hike interest rates either on 23 September or 19 November 2026 to keep inflation under its target.
“However, we have seen a significant increase in fuel costs in September, and we expect another jump in fuel prices in October. This means that the Reserve Bank will likely remain concerned about the potential for second-round effects of the increase in fuel prices.
“In other words, we start seeing a more general increase in prices as a result of fuel costs. Therefore, we think that the Reserve Bank could very well hike interest rates by another 25 basis points.”
Chief economist at PSG Financial Services, Johann Els, noted that the inflation figures will not influence Sarb’s decision to be delivered on Wednesday afternoon.
“I have to stress that this has no impact on the MPC decision that we will hear later today. The MPC concluded its forecasting and modelling runs last week already and have probably already made the right decision before the release of the CPI figure.”
Households might get relief next year
Moolman added that South Africans might get relief in 2027 when the Sarb starts cutting interest rates.
“But then this could very well be the end of the hiking cycle, with rates then remaining at these levels for a while before we expect the Reserve Bank to start providing some interest rate relief during the course of 2027.”
Stats SA revealed that the health index edged lower by 0.1% between July and August, with decreases recorded for a range of medicines. These include painkillers (-0.2%), cough and other respiratory products (-0.3%), and vitamin and mineral supplements (-0.3%). Aggregate annual health inflation was 3.4% in August.
Annual transport inflation decreased to 8.8% from 8.9% recorded in July. This was mainly due to slower annual fuel inflation, which eased to 20.0% in August from 20.6% in July. Petrol prices decreased by 2.0% between July and August. In contrast, diesel prices rose by 3.1%.
