Fitch Forecasts Higher Fuel Cost-Push Inflation For South Africa

Fitch Ratings has said the conflict in the Middle East is likely to exert upward pressure on inflation in South Africa, although the fiscal impact remains manageable for now.

According to the ratings agency, the South African government has introduced a temporary reduction in fuel levies that will remain in place until the end of June 2026 to cushion the effect of rising global oil prices on consumers and businesses.

The measure is expected to result in revenue losses equivalent to about 0.2 per cent of gross domestic product during the planned two-and-a-half-month period.

However, Fitch believes the shortfall will be largely compensated by stronger-than-expected revenue from corporate income taxes and mineral royalties, supported by elevated commodity prices and robust profitability among mining companies.

The agency projected that headline inflation would rise to 4.5 per cent by the end of 2026, exceeding the new target range set by the South African Reserve Bank (SARB), which is centred on 3 per cent with a tolerance band of one percentage point on either side.

Fitch attributed the inflation outlook primarily to higher fuel costs and their spillover effects on broader consumer prices.

Despite the near-term increase, the agency expects inflation to ease back within the central bank’s target range in 2027.

The SARB raised its benchmark interest rate by 25 basis points in May 2026, and Fitch anticipates an additional 25-basis-point increase before the end of the year.

On the external sector, the ratings agency forecast that South Africa’s current account deficit would remain modest, averaging 0.6 per cent of GDP through 2027.

It noted that while higher oil prices would increase import costs, the impact would be offset by strong export earnings from platinum group metals and gold.

Fitch added that the favourable external position would help sustain the central bank’s foreign exchange reserves at levels exceeding 5.5 months of current external payments, above the projected 2027 median of 4.8 months for countries with a similar ‘BB’ credit rating.