NNA News - South Africa’s annual consumer inflation increased to 4.4 percent in August from 4.3 percent in July, while the latest data was followed by a 25-basis-point interest rate increase by the South African Reserve Bank as policymakers responded to renewed fuel and broader inflation risks.

Statistics South Africa said the consumer price index was unchanged month on month in August. The annual increase was driven mainly by housing and utilities, transport, and insurance and financial services. Housing and utilities rose 5.2 percent, transport 8.8 percent and insurance and financial services 5.7 percent.

Food and non-alcoholic beverage inflation also increased for the first time in nine months, rising to 1.1 percent from 0.9 percent in July. Stats SA said fish and other seafood inflation accelerated from 6.6 percent to 7.5 percent, while prices for pork, ham and bacon also increased. At the same time, several beef categories remained cheaper than a year earlier.

Transport inflation eased slightly to 8.8 percent from 8.9 percent, with annual fuel inflation slowing to 20 percent from 20.6 percent. Petrol prices fell 2 percent between July and August, while diesel prices increased 3.1 percent. The August figures came as the Reserve Bank prepared for its September monetary policy decision. Economists polled by Reuters had expected annual inflation to reach 4.5 percent, meaning the latest reading was slightly below market expectations.

The Reserve Bank subsequently raised its policy rate by 25 basis points to 7.25 percent, effective from Sept. 25. The decision was unanimous and takes the prime lending rate to 10.75 percent. Reserve Bank Governor Lesetja Kganyago said renewed pressure on fuel prices had changed the inflation outlook. “A few months back, it seemed that the fuel-price shock might be unwinding, but now it has intensified,” Kganyago said. “We are also seeing global rates moving higher.”

He said the central bank expected headline inflation to rise above 5 percent later this year and early next year before easing as the fuel shock subsides. “Headline inflation will likely be above 5% later this year and early next year, before slowing as the fuel shock recedes,” Kganyago said. “We currently expect inflation to be back around 3% towards the end of 2027.”

The Reserve Bank's decision also reflected the wider international environment. Kganyago said disruptions linked to conflicts in the Middle East and the Russia-Ukraine war were contributing to higher energy and supply-chain costs. “Geopolitical conflicts have caused severe negative supply shocks, which weaken output and raise inflation,” the Reserve Bank said in its September monetary policy statement.

The central bank expects South Africa's economy to grow by 1.2 percent in 2026, down from its previous forecast of 1.4 percent, after the economy contracted by 0.2 percent in the second quarter. It expects inflation to return to the 3 percent target towards the end of 2027. Despite the renewed inflation pressure, the Reserve Bank said food inflation was at its lowest level since 2010, supported by strong harvests and more stable meat prices following the foot-and-mouth disease outbreak. It also said the rand had remained resilient, helping to contain imported inflation.

The latest data therefore points to a mixed inflation picture: headline inflation remains below the Reserve Bank's 3 percent target plus-or-minus one percentage point framework, but fuel and services costs are creating renewed upward pressure as global supply risks persist.