The South African Reserve Bank (SARB) is keeping a close watch on the potential for food inflation to accelerate as rising fertiliser costs, fuel prices and adverse weather conditions put pressure on agricultural production.
South Africa's headline inflation reached 5.0% in June 2026, while the SARB's Monetary Policy Committee (MPC) opted to keep the repo rate unchanged at 7.0%.
Although inflation remains above the central bank's 3% target, the MPC said its previous policy decisions should be sufficient to keep price pressures under control.
Fuel inflation was a major contributor to the increase, accelerating to 12.7% during the month following sharp increases in international fuel prices.
Food inflation, however, provided some relief. Annual food price inflation slowed to 1.4% in June, continuing to moderate despite mounting risks to agricultural input costs.
Speaking at a media roundtable, MPC members led by Governor Lesetja Kganyago said food inflation had declined as expected during June, but warned that conditions could change.
One of the concerns is the impact of the conflict in the Middle East on fertiliser prices and global supply chains. Many synthetic fertilisers rely on fossil fuels in their production, meaning higher energy costs can feed directly into agricultural expenses.
With South Africa's planting season approaching, higher fertiliser prices could eventually put upward pressure on food prices.
Kganyago said fertiliser costs remain elevated but have started to decline. However, he noted that the impact would differ between farmers depending on when they purchased their supplies.
The central bank is also monitoring weather risks, with an extreme El Niño weather pattern expected in the coming months.
El Niño is associated with warming in the tropical Pacific Ocean and can contribute to drought conditions in South Africa, potentially affecting crop production and pushing food prices higher.
Kganyago warned that the current period of relatively low food inflation may not last.
The SARB nevertheless continues to forecast inflation at around 4% for 2026, which would place it near the upper end of the central bank's tolerance range.
Growth versus inflation challenge
The MPC also addressed the difficult balance between controlling inflation and supporting economic growth.
South Africa's economy is expected to grow by only around 1% in 2026, below the country's population growth rate of approximately 1.5%. This could translate into declining economic output per person.
MPC members acknowledged the difficulty of monetary policy decisions, warning that raising interest rates can weaken economic growth, while allowing inflation to become entrenched could eventually require even higher rates.
They argued that lower interest rates alone would not be enough to generate sustained economic growth and that structural economic reforms are needed to improve South Africa's growth potential.
The SARB has repeatedly called for reforms aimed at addressing constraints in areas such as energy, infrastructure and logistics.
MPC remains united
Kganyago also defended the MPC's decision-making process, saying the committee remains united despite occasional differences in voting.
The July MPC meeting ended with a 4-2 vote, highlighting differing views among members over the appropriate policy response.
Kganyago said open debate and differing opinions form part of the committee's decision-making process, but acknowledged that split votes can signal uncertainty to financial markets.
The MPC is also expected to appoint a seventh member to the committee.
Kganyago's own term as governor has three years remaining. He said the SARB has a strong pool of potential successors, although the final decision on who will replace him rests with the President.
For now, the central bank faces a delicate balancing act: keeping inflation under control while supporting an economy that continues to struggle with weak growth.