Tables turn on South African households

South African households are set to experience some financial pain in the coming months as the Reserve Bank fights to get inflation back to its 3% target. 

This marks a stark difference from the easing pressure on households at the end of 2025, which was largely expected to continue throughout 2026. 

Inflation was low, and interest rates were falling, boosting disposable income and spending. This provided a bit of a ‘sugar rush’ for the South African economy. 

However, the script has flipped due to the conflict in the Middle East, and while a peace deal has been signed, oil is unlikely to return to pre-war levels for months. 

This is because it will take time for insurance markets to be willing to underwrite vessels going in and out of the Persian Gulf, and damage to infrastructure will keep exports to a trickle. 

There is also expected to be significant oil buying by the United States, China, and European nations as they rebuild their strategic stockpiles. 

All of this means that South Africa’s inflation rate is unlikely to return to 3% swiftly, with the latest 25-basis-point hike unlikely to be reversed at the next Monetary Policy Committee (MPC) meeting in July. 

Economist Dr Roelof Botha recently explained that the MPC’s policy rate was already seen as overly tight before the war, putting unnecessary pressure on households.

Botha compiled the latest Altron FinTech Household Resilience Index, which showed that South Africa has barely more employed people than unemployed ones. 

It also showed that South Africa’s economic momentum from the end of 2025 and in early 2026 has largely dissipated as disposable income is hit by rising inflation and interest rates. 

“This 1.4% year-on-year GDP growth rate in real terms is double that of the average for the past ten quarters,” Botha told BusinessDay TV. 

“That is fantastic news. We were on the verge of really getting back to growth above 2% and maybe even 3% in 2027.” 

Botha said the economy can grow at 5% per annum relatively easily, and it has done so before in the years leading up to the 2010 FIFA World Cup. 

This requires the right policies to be in place, including monetary policy, he said. 

“During the tenure of the previous Governor, Gill Marcus, the average real prime rate was 3.4%. It is now 6.5% today. It has been as high as 8% in recent years,” Botha said. 

“This is crazy. We have had a structural shift in the application of monetary policy to a permanently more restrictive stance that is holding back the economy.” 

Botha explained that this does not necessarily result in lower inflation, as elevated interest rates do not help more oil to be produced or for more ships to sail through the Strait of Hormuz. 

The tide has turned

Elevated inflation and interest rates mean that disposable income will come under pressure again, slowing economic growth. 

While much focus has been on the government’s reform progress, much of South Africa’s growth in 2025 was driven by rising consumer spending. 

This was never set to last forever, but was expected to be sustained throughout 2026. However, this ended with the spike in fuel prices from the conflict in the Middle East. 

Much of South Africa’s economic data lags events quite significantly. As a result, the impact on inflation was evident only in May, and the impact on economic growth will be seen only when Statistics South Africa releases second-quarter GDP data in three months’ time. 

Companies, however, provide some indication of the potential impact of the war on South Africa’s economy in their forward-looking statements. 

One such company is Nedbank, which is uniquely exposed to South Africa as it has 91% of its assets in the country. 

This makes Nedbank a good bellwether for the country’s economy, as its growth prospects are largely tied to South Africa’s, while its peers have significant operations across the rest of Africa. 

The bank is looking to rectify this by increasing its exposure to faster economies in the rest of Africa through its acquisition of a controlling stake in Kenyan lender NCBA. 

Nedbank expected the 2026 financial year to see a continuation of the acceleration seen towards the end of 2025. 

“When we released our results in early March 2026, we announced that we expected banking conditions in SA to improve further in the coming years, as GDP growth for 2026 to 2028 is set to improve to approximately 1.5% to 1.8%,” CEO Jason Quinn said. 

“After a cumulative 150 basis point cut in interest rates, it was forecast to be reduced by a further 50 basis points, with a plausible scenario of flat rates.”

“Credit extension was forecast to remain relatively robust around 7% to 8%, supported by the anticipated recovery in the domestic economy and lower interest rates.”

This would have boosted Nedbank’s top and bottom lines, with performance further strengthened by its restructuring efforts and acquisitions of iKhokha and NCBA. 

Simply put, this is no longer the case, as this forecast has been fundamentally changed by the conflict in the Middle East and interest rate increases.

“Following our initial assessment of developments in the Middle East, which have resulted in significantly higher oil prices, we now expect inflation to increase to above 4% in 2026,” Quinn said. 

In the bank’s worst-case scenario, inflation could even cross 5% if the war is prolonged and its impacts across markets deepen. 

“As a result, we are not likely to see any interest rate cuts this year. Our GDP growth forecast for 2026 has also been trimmed to 1.3%,” Quinn said. 

The International Monetary Fund recently cut its forecast for South Africa’s GDP growth in 2026 to 1%, which is below the level the country posted in 2025.