Repo rate hike increases financial pressure on South African households ahead of the festive season

In most South African households, the situation with commodity prices demonstrates the state of the economy more clearly than any news headline. When visiting a grocery store with an amount of 100 rand, a shopper often leaves with fewer goods than they could have bought for the same amount a year earlier.

Issues related to oil have become relevant again. The price of Brent crude has exceeded 100 US dollars per barrel, causing the usual media reaction—a surge, a warning, and an upward graph. However, for a person holding 100 rand, this means not so much drama as the stability of a situation that is more complex than headlines suggest.

The pricing mechanism is relatively simple: since South Africa imports most of its fuel and purchases it in dollars, the price at the pump depends on two factors: the international cost of refined fuel and the rand's exchange rate against the dollar. To this are added taxes and levies, which account for about a third of the final price, as well as regulated markups.

From the gas stations, the price spreads further. Approximately seven out of ten public transport users rely on minibus taxis, and between May and June of this year, the fare in such taxis increased by 11.5 percent in just one month. Since every loaf of bread and bag of maize meal is delivered by trucks running on diesel fuel, fuel is a fundamental component of many expenses.

Much of the confusion arises from the variety of economic indicators: the inflation index in headlines, core inflation, CPI, food inflation, medical inflation, and school fee inflation. These indicators are measured differently and presented as if each one speaks to something separate, although in reality, they all merely reflect price increases, not decreases.

In July, the headline inflation figure was 4.3 percent, lower than the previous 5.0 percent, and food inflation fell below one percent—the lowest figure in sixteen years. While this may seem like a relief, a lower number actually only means a slowdown in the rate of price growth, not a decrease in prices.

There is a simpler way to analyze this: Statistics South Africa publishes a constant price index that tracks the cost of a standard basket of goods over time. Comparing the cost of this basket in 2015 with the current cost shows that it has become approximately seventy percent more expensive, and this happened almost monthly, rather than in most months.

During the same period, oil prices fluctuated: falling from 99 dollars per barrel to 44 dollars, then rising above 100 dollars again, and subsequently dropping to 69 dollars. The rand-to-dollar exchange rate also changed aggressively: it fell from less than 11 rand per dollar to more than 18 rand and back again. Both these indicators moved in both directions, whereas the price level moved only in one direction.

Despite the pressure from high oil prices (above 100 dollars), a strong rand, which reached its highest level since 2022 (trading around 16 rand to the dollar and recently falling below this level), plays to the economy's advantage.

In July, when oil prices dropped, petrol fell by 7.1 percent in a month, and diesel by 11.7 percent, which is a real and significant decrease. Nevertheless, both types of fuel remain significantly more expensive than a year ago. Taxi fares, which rose in June, have not returned to previous levels, and the widely tracked basket of basic foodstuffs, which decreased by about 50 rand in August, is still 100 rand more expensive than a year ago.

Rapid downward steps are accompanied by large upward steps. When oil prices sharply rose in March, the government reduced the general fuel levy by 3 rand per liter starting April 1st, extending this support as the conflict continued, and then gradually reducing it by June. This measure provided real protection and cost about 17 billion rand in lost revenue over three months. However, the full levy was reinstated on July 1st.

The honest answer contradicts the headlines. The situation is not serious because oil is above 100 dollars, as it was above this mark in April. The seriousness lies in the fact that in April there was a barrier of 3 rand per liter between world prices and fuel in the tank, and now that barrier is gone. The sum of 17 billion rand over three months is not something the country can afford to do twice.

The Competition Commission has a term to describe this behavior in its Cost of Living Report: 'rocket and feather behaviour'. Prices rise quickly when raw material costs increase, and then slow down or do not decrease at all when these costs decrease. The Commission warns of legitimate concerns that prices may not begin to fall after fuel prices stabilize. It should be noted that not all studies agree, and the analysis of the maize production chain did not reveal such a pattern, instead pointing to drought and global turmoil.

Furthermore, there is a factor unrelated to oil. Food inflation is at a sixteen-year low, and maize meal and bread have actually become cheaper in July. This is not an act of generosity, but the result of two consecutive good rainy seasons, which ensured a maize harvest of about 16.5 million tons against an annual consumption of about 12 million tons. However, this favorable period is coming to an end.

The meteorological service has warned that El Niño will begin in October, coinciding with planting time. Approximately four out of five hectares of summer grain depend on rain rather than irrigation. The last severe El Niño in 2015 and 2016 reduced the national maize harvest by about a third. If this happens again, the cheapest part of the consumer basket will become the most expensive, and the culprit will not be the price of oil.

Therefore, one should not watch the price of oil, as it will change again. One must observe the same basket of goods: track the cost of buying similar items over three months, monitor whether the fare that increased in June will ever return to its former level, and see how the shelf reacts to the strongest rand in four years. The question was never how high oil would rise; it was whether anything we buy would become cheaper again. Based on data from the last decade, this is not happening. It is getting more expensive, but slower, and that is already considered good news.

Civil society and public organizations are opposing the proposed 8.83% increase in electricity tariffs by Eskom. They warn that further increases in energy costs could intensify financial pressure on households and small businesses, which are already struggling with the rising cost of living.

The public has until October 2nd to submit comments regarding Eskom's proposed tariff structure while the National Energy Regulator of South Africa (NERSA) reviews the submission. If approved, the 8.83% increase for direct Eskom customers will take effect in April 2027, and municipal wholesale purchases will increase by 8.84% from July 2027.

The 'Better Governance Initiative' (BGI), which launched the petition against the hike, noted that electricity is taking up an increasing share of household and business budgets. BGI founder and director, Sabelo Chalufu, stated: 'Residents simply cannot afford any further increase in electricity prices.'

He added that the organization's primary concern relates to the cost of living and doing business, affecting residents first and small businesses second. According to him, electricity consumes a larger portion of budgets, hitting the most vulnerable the hardest.

BGI calls on NERSA to reject the increase, arguing that Eskom has demonstrated the ability to operate sustainably on previously approved tariff hikes. AfriForum will also submit official objections to this increase. Morne Mostert, local government affairs manager, questions the decision amid declining electricity sales and Eskom's multi-billion rand profits.

Mostert noted: 'Electricity sales have dropped by 6.2%, yet revenue has grown thanks to unreasonably high tariffs. Now Eskom wants to raise tariffs again above inflation levels.'

He warned that higher tariffs might push more households and businesses towards using solar panels and other forms of self-sufficiency, thereby reducing dependence on Eskom. Mostert emphasized: 'Consumers are buying less electricity but paying more for it.'

The company ActionSA Gauteng also participated in the consultation process, focusing on how Eskom plans to recover revenue, rather than just the overall increase. Funzi Ngobeni, provincial chairperson of ActionSA, stated that the proposed structure could lead to low-consumption households facing a greater effective increase than more active users.

ActionSA clarified that the average increase does not reflect the whole picture; what matters is how much people are actually paying. For instance, a Homepower 4 household consuming 350 kWh could face an 11.02% rise, compared to a 7.32% rise for a user consuming 1,500 kWh. Furthermore, they question the R8.569 billion gap between Eskom's proposed and approved revenue figures.

Matthew Cruz, an energy analyst at Jaltech and member of the Board of Directors of the South African Independent Power Producers Association (SAIPPA), believes that when assessing Eskom's financial obligations, including debt and infrastructure investment, affordability must also be considered. He stated that NERSA should carefully examine not only the need for additional revenue for Eskom but also whether the costs reimbursed to consumers are effective, reasonable, and fairly distributed across different customer groups.

Cruz also warned that tariff increases could accelerate the shift to alternative energy sources. He noted: 'As electricity becomes more expensive, customers who can afford it are increasingly investing in energy efficiency, solar panels, batteries, and other forms of self-sufficiency.'

NERSA requested written comments by 4:00 PM on October 2, 2026, and a virtual public hearing is scheduled for October 8th from 9:30 AM to 1:00 PM. Interested parties wishing to attend or present must apply by 4:30 PM on October 2nd.