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Prices for oil, gas, fertilisers and aluminium have risen sharply amid emerging supply shortages. Meanwhile, uncertainty remains high regarding the conflict’s duration and intensity; while infrastructure destruction may delay supply normalisation even after hostilities end. Inflation pressures may also arise from countries replicating supply chains to strengthen resilience.
Major central banks have paused rate cuts at recent meetings and are expected to remain cautious as they wait for new information. This posture is helped by policy settings that are generally moderately restrictive, affording authorities more room to look through first-round energy effects. Markets increasingly expect most major central banks to raise rates this year.
With uncertainty elevated, global financial markets are likely to remain volatile. South African assets have also sold off amid risk aversion but have so far been relatively resilient, supported by improved macroeconomic fundamentals.
Spillovers from the shock are expected to affect but not derail South Africa’s transition to the 3% target. Inflation was at 3% in February 2026, aligning with the SARB’s target. Headline inflation is projected to rise this year but remain within the plus or minus 1 percentage point tolerance band and return to target by late 2027.
Uncertainty remains high and the scale of second-round effects is difficult to quantify. Alternative oil-price paths suggest materially different inflation trajectories, with potentially large non-linear pass-through effects. While the QPM-implied policy rate path suggests rate cuts will be delayed to the fourth quarter, scenarios show that it may be necessary to raise rates.
Domestic growth strengthened to 1.1% last year, with momentum expected to continue pushing it close to 2% by 2028. However, risks to household consumption are skewed to the downside amid higher fuel prices and potential squeeze on household real income and wealth.
In a less supportive global environment, growth and resilience will depend more on domestic factors. Recent de-risking gains can be reinforced through speedier implementation of structural reforms, improved pricing efficiency for administered goods and services as well as achievement of a prudent public debt level.
