Higher fuel costs are expected to slow growth in South African household spending this year while rising transport and operating costs could add to pressure on goods prices, according to Nedbank Specialist Economist Chrystal Huntley.
Nedbank expects household consumption growth to ease from 3.6% in 2025 to about 2.1% this year, forecasting economic growth of around 1.1%.
Speaking at a CEO breakfast hosted by Nedbank and Automechanika in Cape Town, Huntley said household spending has driven economic growth while other contributors, including investment, contracted.
Consumers benefited from lower inflation, interest rate cuts and rising disposable income. Debt servicing costs fell from 9.4% to about 8.4% of disposable income. Withdrawals from the two-pot retirement system also supported spending although Huntley said this could not continue indefinitely.
Higher oil prices are now changing the picture. Disruptions linked to the conflict involving the United States and Iran pushed Brent crude above US$100 a barrel at times, raising fuel costs in South Africa, she said.
The effect on household budgets was immediate: more money spent filling a vehicle left less for other purchases. Higher transport and operating costs could also eventually be passed on through goods prices.
“Slowly but surely that eats into whatever discretionary spending is left over,” she said.
Huntley expects consumers to spend more cautiously, prioritise essentials and look for cheaper alternatives.
The rand has shown some resilience, helping to cushion the effect of dollar-priced oil on local fuel prices. However, that protection could weaken if the currency is under pressure while oil prices remain high.
Nedbank’s inflation forecast stands at 4.2% with inflation expected to peak at around 5.6%. This forecast does not include another interest rate increase but Huntley said another 25 basis point hike at the Reserve Bank’s November meeting is possible if oil remains above US$100 a barrel and the rand weakens.
Much depends on the course of the conflict. Sustained easing of tensions could bring oil prices down and allow interest rate cuts to resume. Further escalation would put more pressure on fuel prices and economic activity.
Huntley said Nedbank’s best estimate is that the conflict will continue to move between periods of escalation and reprieve keeping oil prices volatile.
