South Africa’s inflation rate rose to 3% in June, driven primarily by higher meat prices due to supply disruptions from the foot-and-mouth disease outbreak, according to Koketso Mano, Senior Economist at FNB. However, underlying inflation remains subdued due to weak consumer demand and lower fuel costs.
Food and Fuel Dynamics Shape Inflation
In an interview Mano noted that food and non-alcoholic beverages were the main contributors to the monthly inflation increase, with beef prices being a significant factor. “The supply-side issues are starting to filter through, particularly in meat inflation,” she said.
Despite the uptick, inflation remains at the lower end of the South African Reserve Bank’s target range (3%-6%), with core inflation—a measure of demand-driven price pressures—at just 2.9%. Mano attributed this softness to weak economic demand and declining fuel prices, which have seen deflation for four consecutive months due to stable international oil prices and a relatively strong rand.
Electricity Costs Set to Push Inflation Higher in July
Mano warned that July’s inflation figures could climb to 3.6%, largely due to rising municipal utility costs, including electricity and water. “Unfortunately, these costs are unbearable for many households,” she said, highlighting that utility inflation has consistently outpaced general price increases.
She emphasized the need for structural reforms in electricity pricing and municipal services to alleviate long-term pressure. “If competition increases in the energy market, we could see more favorable pricing behavior over time,” she added.
US Tariffs: A Growth Concern, Not Yet Inflationary
When asked about the potential impact of new US tariffs on South African exports, Mano suggested the immediate risk was to economic growth rather than inflation. While sectors like automotive manufacturing could face reduced demand, she noted that any inflationary spillover would likely be muted due to cross-subsidization by multinational firms and South Africa’s trade ties with low-inflation economies like China.
Outlook: Inflation Remains Contained for Now
While June’s inflation rise reflects temporary supply shocks, Mano stressed that broader price pressures remain subdued. However, July’s anticipated spike in utility costs could test household budgets further.
“At this stage, inflation isn’t a major concern for the SARB,” she said. “But the real pain point is weak demand and rising essential costs like electricity.”
With structural reforms still pending, consumers may need to brace for higher utility bills in the near term—even as broader inflation stays within the central bank’s comfort zone.