Africa-Press – South-Africa. Both sin taxes and the fuel levy face potential increases in the National Treasury’s upcoming 2026 Budget.
This, along with rising meat prices due to a widespread foot-and-mouth disease (FMD) outbreak, is expected to put pressure on inflation in 2026.
Investec chief economist Annabel Bishop recently outlined some of the most pressing risks to South Africa’s inflation outlook.
South Africa’s latest CPI inflation print was for December, which came out to 3.6%, a slight uptick from November’s 3.5%.
Bishop said January is expected to see a similar rate, before dropping off in the remainder of the first quarter of 2026, reaching 3.0% in March.
She explained that base effects from a year ago have been responsible for the rise in inflation in the second half of 2025, with the second half of 2024 seeing inflation drop from 5.1% to 3.0%.
“The run-up in inflationary pressures over H2.25 has also provided a high base for H1.26 to begin off,” she said.
Currently, inflationary pressures in South Africa remain moderate, with the rand’s recent strength and a drop in the oil price having aided in lowering fuel prices.
Bishop explained that, if the rand appreciates by R0.50 against the US dollar, South Africa could see a 0.1% drop in the CPI inflation rate per year.
Therefore, if the rand averages R16.50/USD for a full year, CPI inflation is likely to come in at 3.1%, or 3.0% on a R16.00/USD average.
If the rand drops even lower, averaging R15.50/USD for the full year, CPI inflation is likely to come out at 2.9% for 2026. It should be noted that these figures depend on other factors not changing, only the rand.
Regardless, South Africa is set up for a low inflation year, with CPI set to remain close to the Reserve Bank’s new 3% target.
However, Bishop outlined some risks to the country’s inflation, including the two most common drivers – food and fuel prices.
Food and fuel
Bishop said that while CPI inflation is expected to run close to 3.0% for most of this year, food and fuel prices remain a risk to the inflation outlook, having historically fluctuated substantially, affecting inflation.
Regarding food inflation, she explained that both international and domestic agricultural price pressures are key, along with the exchange rate, though domestic input costs can be the main driver.
Globally, food price inflation is currently very modest, with a bumper maize harvest in South Africa set to see the same domestically.
However, high meat prices are exerting notable inflationary pressure due to the ongoing FMD outbreak, which has pushed food price inflation above 4.0%.
This FMD outbreak is considered severe, with the disease currently ravaging farms in KwaZulu-Natal, Mpumalanga, North West, Gauteng and the Free State, and to a lesser extent also present in Limpopo and the Western Cape.
The disease has put severe upward pressure on meat prices, with inflation accelerating rapidly in South Africa.
Meat price inflation reached 12.6% in December, up from -0.4% a year ago, having accelerated since April 2025, with no signs of relief anytime soon.
Regarding fuel prices, Bishop explained that lower fuel prices have actually contributed to more moderate inflation in South Africa.
The petrol price saw another 65 cents per litre drop on Wednesday, 4 February, driven by a 36.5 cents per litre drop in international petroleum product prices, as well as a 28.5 cents per litre drop due to the rand’s appreciation against the US dollar in the month.
Bishop explained that oil is the largest of South Africa’s import categories by rand value, although the petrol price only has a tiny weighting of 3.8% in the CPI basket.
Furthermore, she explained that half of the fuel price is made up of taxes and levies, which do not alter when the rand oil price does.
However, Bishop warned that the gains from a potential March fuel price cut risk being wiped out by a probable fuel levy hike in the upcoming 2026 Budget.
Along with sin taxes, Bishop expects the 2026 Budget to contain two tax hikes that could present inflationary pressures.
“This month sees the budget, which will increase sin taxes as usual, a seasonal event placing upwards pressure on inflation, while increases in fuel levies risk wiping out the 30 cents per litre petrol price cut that is building already for March,” she warned.
With personal and corporate income taxes, as well as the value-added tax, considered by some to be “no-go” zones for increases, the 2026 Budget could see the National Treasury hiking smaller taxes to boost its 2026/26 revenue.
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