The Household Sector Economy
With the Middle East conflict still unresolved, and oil prices still “elevated”, a 2026 growth slowdown, higher average inflation, and mild interest rate hiking appears the likely scenario.
A month-to-2 months ago, it had been hoped that the only noticeable impact emanating from the Middle East conflict’s resultant fuel price shock would be a mild and short-lived domestic inflation increase. However, heading into the 3rd month of conflict and resultant Gulf shipping disruption, slowing economic growth and rising interest rates appear increasingly likely too.
Most key economic indicators released in April were of limited use in pointing to near-term economic growth prospects ahead.
The March CPI (Consumer Price Index) inflation rate remained benign, showing only a slight rise, from 3% in February to 3,1% year-on-year.
The SARB Composite Leading Business Cycle Indicator continued to point upward in February (released in April), and 2 more up to date components of this indicator, NAAMSA new passenger vehicle sales and the Absa Manufacturing Purchasing Managers Index (PMI) New Sales Orders Sub-Index showed a fairly good picture too. Passenger vehicle sales grew by 14,3% year-on-year in April, slower than the 18,2% rate for March, but still strong. The PMI New Sales Orders Index rose on a seasonally-adjusted basis from 44,5 in March to 52,9 in April, its 1st month (scale 0 to 100) above 50 since September 2025.
Viewing those indicators, one could be forgiven for expecting a near-term economic growth improvement for South Africa. However, the most up to date indicator that arguably says more about the near-term economic future is domestic fuel price inflation, with a 327 cents/litre increase in petrol prices and a 619 cents/litre increase in diesel prices due in May.
Viewing the Gauteng petrol price, the year-on-year inflation rate is an extreme 24,57% in May, sharply up from prior months.
The jump in domestic fuel price inflation tells us that a surge in CPI inflation rates in April and May is likely. From 3,1% year-on-year in March, I expect the CPI inflation rate to rise to 3,7% in April (data not yet released), and further to around 4% in May.
This is based largely on the direct impact of transport fuel price inflation. Thereafter, a second round impact can likely be expected, as the fuel cost increase for various producers is passed on through the economy, ultimately much of it to the consumer.
Potential Oil Shock Impact Broadens the Longer the Conflict Continues
We had started the year expecting some mild acceleration in real GDP growth, from last year’s 1,1%. Even following the onset of the Middle East conflict, the hope was that, if it was short lived, oil prices could decline fairly quickly, and a major inflation surge with resultant interest rate hiking and slower economic growth could possibly be avoided.
However, heading into the third month of conflict, with the severe limits to shipping flows through the Strait of Hormuz still largely in place, keeping oil prices elevated, hope for a speedy resolution to the conflict has waned. At time of writing, the Brent crude oil price was sitting at around $114.00/barrel, which remains sharply higher than a level near to $60.00/barrel at the beginning of this year.
There still exists a strong incentive for the US to end the conflict, given its approaching mid-term elections and the importance of cost of living pressures in election campaigns. But it no longer appears that the resolution will come quick enough to limit the oil shock impact solely to a short-lived inflation surge.
The 3 Potential Impact Points for the Economy and Consumers
There are 3 main mechanisms through which a mounting global oil shortage and price shock can feed through to the South African economy and thus its household sector:
- Slower global and local economic growth
Restricted oil supply to the world can mean slower global economic output growth or even decline. In April, the IMF released its updated global economic forecast, forecasting slower global economic growth in 2026, to the tune of 3,1%, compared with 3,4% in 2025.
For South Africa, this is expected to keep the pressure on already-weak domestic exports in 2026. The result would be production weakness in export-driven sectors, resulting in weak employment growth. This impact filters through to the rest of the economy via the export sector’s supplier sectors.
This in turn will likely constrain household sector/consumer income growth in South Africa, implying weaker consumer purchasing power growth.
- Impact via prices
The direct and indirect impact on overall CPI inflation, caused by the fuel price surge, eats into real (inflation-adjusted) household disposable income, and thus into real consumer purchasing power. - Interest rate hiking
Because the SARB (South African Reserve Bank) has a 3% CPI inflation target, a rise in inflation could lead to interest rate hikes. A higher cost of repaying outstanding credit would further eat into disposable income and raise the cost of many new credit-dependent purchases.
Outlook 2026: Slower Growth, Higher Inflation, and Mild Interest Rate Hike
Considering the above, and the fact that a resolution to the conflict around Iran still lacks, GDP growth for 2026 is revised to 0,8%, reflecting a slowdown from a 1,1% actual rate for 2025.
CPI inflation is projected at an average rate of 3,8% for the year, implying a near-term move above 4% during much of the Winter.
Household consumption expenditure growth is expected to slow from 3,6% in 2025 to 1,7% in 2026, constrained by higher inflation, a small interest rate rise, and slower employment and income growth.
Consumption Trends Likely in a More “Risk-Averse” Household Sector
- Luxury/non-essential goods demand to slow
- “Postpone-able” purchases under pressure (cars, home maintenance, furniture, appliances, technology)
- Slower credit-dependent purchases (durable goods like vehicles and appliances)
- Durable goods consumption to slow significantly
- “Restaurants and Hotels” sector likely to experience a slowdown due to reduced discretionary spending and higher travel costs
Potential Home Buying Impacts
- Home buying demand to slow due to interest rate sensitivity
- Supply of homes may also decline as sellers delay decisions
- Mild increase in downscaling due to financial pressure
- Residential building activity may slow again
Conclusion
Early in the US/Israel-Iran conflict, the hope was that it would be short-lived, with shipping via the Strait of Hormuz normalizing fairly swiftly. As the conflict moves into the 3rd month with little sign of being resolved, and global oil stocks reportedly running down, the likelihood of an economic growth slowdown, a more prolonged inflation surge, and interest rate hiking becomes a more likely scenario for South Africa.
The result is likely to be a more cautious and constrained consumer, with constrained demand for luxury, non-essential, postpone-able, credit-dependent spending items—and big-ticket items such as home buying.
