The South African Reserve Bank (SARB) warned that the South African economy faced a stagflation risk.
“Risks to global growth and inflation have risen significantly. Sharply higher energy-related commodity prices and supply-chain disruptions have heightened near- to-medium-term stagflation concerns,” the SARB said in its April 2026 Monetary Policy Review.
Stagflation
Stagflation is a term coined by economists to denote STAGnation and high inFLATION. This is what happened as a result of a sharp rise in oil prices in 1974 and 1979.
In those two episodes, South Africa suffered high inflation. Nonetheless the economy grew due to high gold prices.
The February 2022 Russian invasion of Ukraine also prompted a jump in oil prices. Most economists then expected the consequent surge in energy prices to boost inflation and lower economic growth. Inflation did increase to an average of 6.9% from the Budget forecast of 4.8%, yet economic growth exceeded the Treasury forecast of 2.1% by coming in at 2.5%.
High growth in 2022 was largely due a 5.9% surge in fixed investment. This followed six consecutive years of annual declines. South Africa has now experienced two consecutive years of declining fixed investment. The Treasury forecast a 2.4% rise this year.
High precious metal prices are widely regarded as providing a buffer to the domestic economy. Elevated prices could strengthen mining output, boost tax receipts and create limited fiscal space for infrastructure expenditure.
Inflation target
In February 2026 South African consumer inflation hit the SARB’s inflation target of 3%. This is the first time it was hit since it was announced in the 12 November 2025 Medium Term Budget Policy Statement (MTBPS).
The MTBPS gave the SARB some flexibility as the inflation target is 3% plus or minus 1 percentage point. So 3% is the target, but it can vary between 2% and 4%.
If Israel and the US had not attacked Iran on 28 February, then there would have been a good chance that the repo rate would have been cut on 26 March.
At the last Monetary Policy Committee (MPC) meeting in January, the committee voted four to two to keep the repo rate steady. Most economists before the Iran war expected a rate cut in March.
Wait and see
The SARB said most major central banks have adopted a wait and see attitude as cease fire talks are ongoing. They are expected to remain cautious, guided by incoming data and the balance of risks.
It expects headline inflation to rise temporarily in the near term as the oil shock feeds through, before returning to target from late 2027.
It noted that the Iran war, together with ongoing trade tensions, may accelerate the establishment of parallel supply chains. This could potentially raise inflation further as countries trade off efficiency for resilience.
The bottom line is that the risks of stagflation have risen substantially. This is because it is not only oil prices that are affected by the closure of the Strait of Hormuz. The supply disruption of petrochemicals such as urea, plastics and fertilisers will impact food prices.
