The South African Reserve Bank’s May Monetary Policy Committee statement points to a more difficult economic environment than seemed likely only a few months ago. The MPC increased the policy rate by 25 basis points to 7%, with four members supporting the move and two preferring no change. The decision was driven mostly by a sharp deterioration in the global inflation outlook, particularly following the escalation of the Middle East crisis and disruption around the Strait of Hormuz.  

For South Africa, the immediate concern is that higher oil prices are feeding directly into consumer prices. Inflation rose to 4.0% in April, up from 3.1% in March, largely because fuel prices jumped by 11.4% after falling the previous month. Services inflation also accelerated to 4.6%, suggesting that price pressures may be spreading beyond fuel into areas such as transport, insurance and financial services.  

The Bank has therefore revised its inflation forecast upwards. Headline inflation is now expected to average 4.4% in 2026 and 3.7% in 2027, before returning to the 3% target in 2028. The SARB also highlighted upside risks from food prices, higher diesel and fertiliser costs, and a possible El Niño event, which could place further pressure on agriculture.  

At the same time, the growth outlook has weakened. The Bank has lowered its growth forecasts for the next two years, noting that higher uncertainty and reduced disposable income are likely to weigh on investment and household consumption. However, it also pointed to underlying resilience, including favourable export prices, domestic reforms and Moody’s recent decision to assign South Africa a positive ratings outlook.  

The key message is that monetary policy is shifting back towards caution. The SARB cannot prevent the initial impact of global supply shocks, but it is determined to stop temporary price increases from becoming entrenched.