Calm before the storm for South Africa
South Africa’s Producer Price Inflation (PPI) followed the country’s Consumer Price Inflation (CPI) lower in July 2026—but economists say it’s likely a small blip, with inflation expected to heat up in the months ahead.
According to Stats SA’s data, PPI cooled to 5.7% y/y in July, down from the 7.5% y/y recorded in June.
As with CPI, the main factor driving inflation lower was a drop in fuel prices for the month, where petrol prices were cut by R1.96 per litre.
More significantly for producers and industry, diesel prices were cut by a significant R3 per litre that month, helping to cut costs.
Economists at Nedbank noted that the fuel price cuts were due to a significant increase in the number of tankers transiting the Strait of Hormuz, following the temporary truce between the US and Iran in mid-June.
This, combined with a steady rand, drove local diesel and petrol prices down by 12% and 8.1%, respectively.
“These declines more than offset the impact of the R1.5-per-litre increase in the fuel levy, dragging inflation for coke and petroleum products down from 38.8% to 24.4%,” the group said.
Meanwhile, food prices remained subdued, benefiting from a healthy summer harvest, the fading impact of foot-and-mouth disease, and low global food prices.
Nedbank noted that PPI decreased faster than expected, but there were still some nasty movements in pricing.
Notably, inflation for electricity and water rose from 5.5% to 7.5% due to higher electricity tariffs, which outweighed a moderation in water inflation from 11% to 8.3%.
The base effects for softer food inflation are also starting to recede, it said.
Perhaps the most pertinent message from the group is that the decline in inflation is not expected to last.
According to the group, inflation risks have increased again in August, following renewed uncertainty in the Middle East.
Expectations of a diplomatic breakthrough between the United States and Iran weakened after US President Donald Trump indicated that no negotiations were taking place.
As a result, Brent crude oil prices have risen sharply once more, trading at around $90 per barrel.
Because of this, the bank forecasts PPI to pick up again to 6% in August, driven by higher fuel prices.
The outlook for September is also murky, with month-end data from the Central Energy Fund (CEF) indicating another significant fuel price hike next week.
This will, again, likely impact next month’s inflation readings.
“Despite these challenges, we expect producer inflation to be contained during the second half of the year,” Nedbank said.
“After the August increase, PPI is forecast to moderate again, ending the year at 5.5% and averaging around 5% in 2026.”
Storm still coming
While Nedbank expects inflation to ease in the final months of the year, it cautioned that its forecast faces upside risks.
This is primarily due to ongoing uncertainty around the conflict in the Middle East, as well as the expected weather associated with El Niño—though the latter is only expected to impact crop production and prices in 2027.
The forecast also comes with the caveat that, even in a base case, inflation remains well outside the South African Reserve Bank’s target.
According to Aluma Capital Chief Economist, Frederick Mitchell, this shows the ugly reality that inflationary pressures remain firmly entrenched, even if monthly producer prices decline.
This will have an impact on the SARB’s interest rate decisions for the rest of the year, with its next meeting expected in September and a final meeting in November.
“Overall, the trend in producer price inflation remains above the SARB’s upper target…and this does not bode well for general consumer inflation and inflation expectations in South Africa in the short to medium term,” Mitchell said.
Consumer inflation still exceeds the upper band of the new target range, at 4.3% in July. This is expected to rise to 5% in August, again off the back of rising fuel costs.
While petrol prices saw a modest cut in August, diesel prices saw another big increase, something expected to continue in September, as mentioned.
“Current figures suggest consumer inflation will likely remain elevated in the short- to medium-term, as energy price shocks continue to reverberate throughout the economy,” Mitchell said.
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