Inflation unchanged in May at 2.8% as economists expected

The inflation rate remained unchanged in May at 2.8% as economists expected, but geopolitical risks could see it drift higher than expected in the months ahead.

Statistics South Africa (Statistics SA) announced on Wednesday morning that the inflation rate remained the same as in April, with food prices being the only category that pushed inflation up in May by 0.2% compared to April.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the outcome was in line with their expectations, and they continue to see a mild increase in price inflation heading into the second half of 2025.

The main contributors to the inflation rate in May were housing and utilities, which increased by 4.5% and contributed 1.0 percentage point, food and non-alcoholic beverages, which increased by 4.8% and contributed 0.9 percentage point and alcoholic beverages and tobacco, which increased by 4.3% and contributed 0.2 percentage point.

Statistics SA noted that higher meat prices (+4.4%) were a key driver of prices, with the biggest monthly increase recorded for beef products. Van der Linde points out that South Africa is in the grip of a widespread outbreak of foot-and-mouth disease, which intensified in June and will have an impact on domestic food prices going forward.

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Fuel levy offset lower fuel prices in May, keeping inflation at 2.8%

“Elsewhere, the latest data shows that domestic fuel prices declined further in June, but this is likely to be offset by the simultaneous increase in general fuel levies this month. Mid-month fuel prices data from the Central Energy Fund (CEF) indicates that petrol and diesel are likely to cost more in July after the latest upsurge in international oil prices.”

He also notes that international oil prices rallied after Israel’s strikes on Iran, with Brent Crude Oil prices briefly hitting $80.0 per barrel before settling around $74 per barrel. “Due to the flare-up in tensions in the Middle East, we now forecast Brent Crude Oil prices to average $67.8 per barrel in 2025, slightly higher than our previous estimate of $67.3 per barrel.

“While oil supply remains unaffected, further escalation could see Iran close the Strait of Hormuz, cutting off around 20% of global supply and potentially driving prices to $120 per barrel. At that point, oil prices would be near the levels recorded when Russia invaded Ukraine and domestic fuel prices shot up to record levels.”

However, Van der Linde says the latest inflation data does not alter their updated inflation outlook, and they still forecast inflation will average 3.4% in 2025 compared to 4.4% in 2024.

“Although headline inflation will drift higher throughout the second half of the year due to base effects, the overall outlook remains benign and unchanged from our earlier views, although several risks have emerged recently that could lead to prices increasing faster.”

ALSO READ: What Israel–Iran conflict means for South African economy

Risks to inflation outlook worsened over past few days

Busisiwe Nkonki and Johannes (Matimba) Khosa, economists at the Nedbank Group Economic Unit, also expect inflation to drift upwards in the second half of the year, but still average a muted 3.5% in 2025.

However, they say, risks to the inflation outlook have worsened in recent days as the rand weakened, and global oil prices jumped due to the conflict in the Middle East.

“Food prices will increase as the base continues to normalise. However, favourable crop prices resulting from good rainfall, as well as increased livestock slaughtering, will contain the upside. The biggest concern is the rand.

“While the domestic currency has been resilient in recent weeks, it remains vulnerable to unfavourable global economic and geopolitical developments.

“The Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) will have to weigh the benign inflation outlook against the potential upside risks emanating from the highly volatile and uncertain global environment. At this stage, we still see room for the Sarb to cut further in July.”