Inflation has come down to 3.2% in the first month of 2025 (Statistics South Africa, 2025). Now where do we go from here, with VAT increasing to 15.5% in 1 May 2025. What will this increase do to our inflation rate? By adding 0.5% to our direct tax (VAT) it will increase inflation, or the CPI, by 0.3% (Investec, 2025). On the other hand, it may rise to 4.5% (PwC, 2025).
As we all know, the main controlling instrument used by policy makers all over the world is to raise interest rates to combat inflation. (South African Reserve Bank, 2025). This means that those individuals may be faced with a potential interest rate pause or an increase.
Food prices have increased in 2024 by a staggering 50% (PwC, 2025). So, looking forward, will this trend continue or will it begin to ease? There is some relief in the form of new VAT free (Zero-rated) items such as dairy and vegetables, and for low income households this will be some relief (Mediadon, 2025).
- For fuel and transport, the fuel levy has not been increased, which will be a much-needed relief as all people, low income or middle income, need to be able to get to work. This was further highlighted in the speech that we in South Africa spend more than others on transportation. Hence the development plans on rail and infrastructure. As we further do not produce all of our oil required in South Africa we need to consider the impact of the international oil prices. This will directly impact the cost of transport and will impact inflation. If we do take into consideration the newly elected president of the USA; he has indicated that the price of oil must come down. His new policy is “Drill baby drill”. So, this may be a potential positive impact on the rising oil prices?
- The electricity increase in July 2025 will have an impact on our inflation. The electricity costs will increase by 12.74%. It is estimated that this will impact our CPI by 0.6% (PwC, 2025).
- Wages and unemployment, an important economic indicator. Our current rate of unemployment rate is 31.9% (Mnyanda, 2025). As we know, if you are not employed, you cannot ask for an increase, which means you are reliant on some form of support. This puts pressure on the government to focus on job creation and to some extent that was addressed in the budget speech. The investment in infrastructure will add much-needed jobs to those skilled but unemployed persons.
