Inflation edges up before Iran oil shock registers

South African annual inflation edged higher in March, even before the US-Israeli war on Iran triggered a surge in domestic fuel costs.

Consumer prices rose 3.1% from 3% in February, Statistics South Africa said in a statement on Wednesday. That matched the median estimate of 17 economists in a Bloomberg survey.

The central bank’s monetary policy committee – which targets inflation at 3% – will likely look beyond the latest data and focus on next month’s statistics at its May 28 meeting. April inflation data will capture the biggest increase in gasoline and diesel prices in almost two decades.

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The closing of the Strait of Hormuz because of the conflict in the Persian Gulf has sent energy, fertiliser and food prices soaring, stoking global inflation as the waterway carries about a quarter of seaborne oil as well as liquefied natural gas and key crop nutrients. Central Energy Fund data shows South Africa will likely raise fuel prices again next month.

A Bloomberg survey before the inflation data showed most economists expect the central bank’s benchmark rate to stay at 6.75% through year-end, while Citigroup sees a 50 basis-point hiking cycle this year starting from next month.

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Governor Lesetja Kganyago warned last week that the bank’s war-risk scenarios are already unfolding. One assumes a two-month conflict with oil near $100 per barrel and the rand 5% weaker; the other envisages a longer war, with oil above $100 and the currency down about 10%.

“You are seeing the adverse scenario playing itself, although not fully,” Kganyago said. “I don’t think that we are far off with what we said would happen with the oil price.”

He also said the MPC would need to act.

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“We are not going to try and be pre-emptive,” said Kganyago. “But neither can we afford to be complacent and say we’ve got to wait for the second-round effects to arrive before we actually take an appropriate policy response.”

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