By Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano & Ame Muller
Domestic producer inflation has surged, pointing to re-emerging cost pressures at the factory gate. Headline producer inflation accelerated sharply to 7.8% year-on-year (y/y) in May, from 4.8% in April, with petroleum-related products being the largest contributor. To contextualise, in May last year, producer inflation was 0.1% y/y and ended 2025 at 2.9%. This increase largely underscores the passthrough of higher global oil prices amid heightened geopolitical tensions in the Middle East.
Production cost pressures have intensified, with intermediate producer inflation - a measure of goods as they enter the production process - accelerating 13.7% in May, up from 10.0% in April. This marked the highest reading since October 2022 when the intermediate producer inflation was 11.2%, highlighting a renewed build up in upstream cost pressures. This increase is consistent with the elevated Manufacturing PMI Price Index which was at 84.8 points in May compared to 50 points in December 2025. Domestic manufacturers continue to face a confluence of challenges, including rising production costs, subdued domestic demand and an unfavourable external backdrop.
In April, manufacturing output dropped by 2.9% y/y and 2.7% month-on-month (m/m), reflecting continued production challenges and marking a weak start into 2Q26. Weakness in this sector remains broad-based, with year-to-date output down in six out of ten manufacturing divisions. In particular, wood and wood products is down sharply by 9,6%, basic iron and steel is down by 3.7% and automotive-related production is down by 3.1%.
With the broader economy largely vulnerable to fuel price shocks, given its large reliance on road freight transportation (i.e., 85% of South African [SA] goods being transported by road), input costs pressures are likely to remain a significant drag on the productive sectors over the near term. We expect manufacturing to still weigh on GDP growth in 2Q26 following two consecutive quarters of contraction.
While the latest United States (US)-Iran ceasefire deal has provided some relief to global oil prices, with oil prices at around US$73.57 per barrel (at the time of writing), the situation remains fluid and the initial shock has already filtered through to domestic costs and inflation dynamics. Both consumer and producer inflation have lifted above target, at 4.5% and 7.8%, respectively. We will continue monitoring developments through the 60-day cease-fire to see whether conditions continue to improve and if oil prices remain contained at current levels. Encouragingly, flows data from the Internation Energy Agency (IEA) already suggests some improvement in the Strait of Hormuz.
Week in review
The leading business cycle indicator declined by 1.8% m/m to 118.9 in April, reflecting 4.1% annual growth versus 5.8% previously. The monthly fall was due to a deceleration in the trend growth rate of real M1 money supply and a decrease in the number of residential building plans approved.
The FNB/BER Consumer Confidence Index (CCI) fell sharply to -19 in 2Q26 from -7, largely due to the impact of the Iran conflict, which drove fuel prices higher and weighed on financial markets and household budgets. All three subcomponents weakened: consumers have a more negative economic outlook; perceptions on household finances dropped to neutral; and there was a further decline in the willingness to buy durable goods. The drop in sentiment was most pronounced among high-income households, while low-income sentiment remained relatively stable. Overall, the decline points to reduced consumer spending, especially on discretionary items, with real consumption likely contracting on a quarterly basis in Q2, despite still-positive year-on-year growth. Although easing oil prices following a tentative Middle East truce may provide some relief later in the year, tighter financial conditions are expected to continue weighing on consumers in the near term.
Weekly Round-Up: Economics from Broader Africa
