Beyond the grocery basket: Understanding South Africa’s inflation dynamics

By Simphiwe Mlotshwa and Lesedi Mokoena (Agricultural Economists at National Agricultural Marketing Council)

The escalation of the conflict involving the United States, Israel and Iran in early 2026 disrupted global oil markets, particularly through instability in the Strait of Hormuz, a key route for global oil trade. As South Africa imports a significant share of its crude oil and refined petroleum through this corridor, the disruption contributed to sharp increases in domestic fuel prices. Between February and May 2026, petrol prices rose by approximately 33%, while diesel prices increased by more than 74%. Compared with May 2025, petrol prices were 25% higher and diesel prices had increased by 65% year-on-year.

The increase in fuel prices raised transport and logistics costs, particularly affecting agriculture, where diesel is essential for production and freight transport. Higher transport costs contributed an estimated 1.3 percentage points to annual inflation, with headline inflation (Consumer Price Index (CPI)) increasing from 4.0% in April to 4.5% in May 2026. Although fuel inflation eased from 18.2% in April to 14.3% in May, it remained 28.7% higher than a year earlier, continuing to place upward pressure on production and distribution costs.

Impact of food prices on the country’s inflation in May

Inflation is more than a measure of changing prices. It is one of the most important indicators of the economic well-being of households. Every percentage point change in inflation influences how far consumers’ income can stretch, affecting purchasing power, living standards, financial security, and overall welfare. Among South Africa’s inflation indicators, the headline CPI and the Food and Non-Alcoholic Beverages (NAB) inflation index provide complementary but distinct insights into pressures faced by consumers.

During the first five months of 2026, these two measures followed different trends. Headline CPI gradually declined from 3.5% in January to 3.0% in February, 3.1% in March, before accelerating to 4.0% in April and 4.5% in May. In contrast, food and NAB inflation steadily declined from 4.4% in January to 3.7% in February, 3.6% in March, 2.9% in April, and further down to 1.9% in May. At first glance, this divergence appears counterintuitive. Food prices are generally more volatile than headline inflation because they are highly susceptible to weather conditions, livestock disease outbreaks, international commodity prices, and global supply chain disruptions. Geopolitical tensions such as the conflict surrounding the Strait of Hormuz, together with uncertainty in global energy markets, would be expected to place upward pressure on agricultural production costs and ultimately food prices. However, South Africa experienced the opposite outcome during the first half of 2026, with food inflation slowing significantly while headline inflation accelerated.

The divergence reflects a shift in the composition of inflationary pressures across the South African economy. Headline CPI captures price movements across the entire basket of consumer goods and services, including housing, utilities, transport, healthcare, insurance, and other household expenditures. Consequently, high increases in these categories can outweigh declining food inflation and push the overall inflation higher. Within the food basket itself, inflationary pressures have not disappeared entirely but have become increasingly concentrated. In May 2026, the largest contributions came from fish and other seafood, which increased by1.4%, followed by oils and fats (1.0%), vegetables (0.9%), and other food products (0.7%).

The bumper grain and oilseed harvest from the previous production season, coupled with abundant fruit supplies, is attributable to the lower prices of several products within South Africa’s major food basket. Thus, favourable supply conditions offset price increases in other food categories, resulting in broad food price deflation. 

The rise in headline inflation suggests that households are increasingly experiencing inflation from goods and services that extend beyond supermarket shelves. This reflects the broad nature of CPI, where increases in administered prices, housing expenses, municipal services, transport costs, and various consumer services increasingly outweigh the decline observed in food prices. This distinction becomes particularly important when considering the role of administered prices in shaping inflation across the broader economy. 

Unlike market-driven price fluctuations, administered prices are regulated and are generally unavoidable for both households and businesses. During the 2025/26 financial year, the National Energy Regulator of South Africa (NERSA) approved a 12.74% increase in electricity tariffs. This was followed by a further electricity tariff increase of 8.76%, which came into effect on 1 July 2026. These electricity tariff hikes are expected to place additional financial pressure on both households and productive sectors, including agriculture, where electricity is a critical input. Higher tariffs raise operational costs across the value chains, from production and processing to storage and distribution, placing further upward pressure on the prices of goods and services. 

However, the burden of these developments does not distribute evenly across South African households. Lower-income households which typically allocate a much larger proportion of their disposable income to essential goods and services such as food, electricity, water and transport are the most negatively affected, with very limited flexibility to absorb price increases. For households already operating with constrained budgets, even modest increases on essential expenses usually necessitates difficult trade-offs between food consumption, transport, education, healthcare, and other necessities.

Ultimately, households do not experience inflation as isolated increases in individual prices. They experience it as the cumulative cost of maintaining their standard of living. Although food inflation has moderated in recent months, rising transport costs, higher fuel prices and the forthcoming increase in municipal tariffs suggest that broader cost-of-living pressures are intensifying. As a result, the effects of the current energy market dynamics may carry over into the upcoming season. The recent divergence between headline and food inflation therefore highlights an important shift in South Africa’s inflation landscape; one in which non-food essentials are becoming the primary drivers of household financial strain, with direct implications for consumer welfare, financial resilience and economic wellbeing.

Overall, although recent fuel price reductions may ease some cost pressures, rising electricity tariffs and municipal charges remain a concern. This underscores the need for a greater efficiency in the provision of municipal services and moderation in administered price increases to support household welfare and limit cost pressures across the agricultural value chain.

Disclaimer: The views expressed in this article is solely that of authour, and does not necessarily reflect the views of Mzansi Agriculture Talk, their employers, or other associated parties.