By Koketso Mano and Ame Muller
Headline inflation rose to 4.5% year-on-year (y/y) in May from 4.0% in April. The print is lower than our forecast and market consensus of 4.8%. Monthly pressure was 0.7% month-on-month (m/m), mainly due to energy and core inflation.
Core inflation lifted to 3.8% y/y, with monthly pressure of 0.2% m/m. Services inflation recorded 0.1% m/m and 4.7% y/y, while core goods inflation was 0.4% m/m and 1.8% y/y.
Average fuel prices increased by 14.3% m/m and were 28.7% higher than in May 2025.
Food and NAB inflation slowed to 1.9% y/y, from 2.9% previously, and monthly pressure was flat. Marginal monthly pressures were recorded in most items but were mitigated by fruits and nuts as well as meat deflation.
Outlook
Updating our model with today's data suggests that headline inflation will rise to 4.7% y/y in June, driven once again by accelerated transport costs. While we anticipate that inflation in other categories will remain contained, pressure on retailers is building as margin compression, previously a buffer against global supply shocks, persists.
Looking further ahead, fuel inflation should abate alongside softer oil prices. That said, continued flare-ups in the Middle East as well as any prolonged disruption to physical supplies of energy provide key near-term upside risk. In South Africa, the prevailing over-recovery on regulated fuel prices suggests that market movements are sufficient to mitigate the complete removal of the general fuel levy relief. As a result, we are likely to see pump prices adjusted lower in July and this should ease cost pressures. This would be the second consecutive cut to wholesale diesel prices and could prove sufficient to contain second-order inflation in some industries.
In response to rising fuel-driven inflationary pressures, the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) adopted a more hawkish stance, raising the policy rate modestly while signalling readiness to act more aggressively should inflation risks intensify. Therefore, slower fuel costs and contained second-round effects would ease the upward pressure on nominal interest rates. However, the MPC has placed considerable emphasis on the risk of the immediate cost pressures becoming entrenched through higher wage and inflation expectations. In line with this, monetary policy is likely to remain cautious, and we do not anticipate a speedy pivot in language or action.
The June inflation print is scheduled for release on 22 July. Major periodical surveys conducted in June include housing (actual rentals and owner's equivalent rent, 15.53%) as well as public transport (2.72%).
