South Africa entered 2026 in its best inflation position in 21 years. Inflation had fallen to 3% – right on the Reserve Bank’s new target. More rate cuts were on the table. Consumer confidence was cautiously recovering. After years of grinding cost-of-living pressure, there were genuine reasons for optimism. Then the Iran war started. And the numbers started moving in the wrong direction.
How oil affects inflation?
South Africa imports virtually all of its refined fuel. There is no domestic buffer, no strategic reserve of meaningful size, no alternative supply chain.
When global oil prices move, South African petrol prices follow – amplified by whatever the rand is doing at the same time.
April and May 2026 currently rank as the fifth- and sixth-largest monthly petrol price increases in South Africa’s 50-year recorded history.
The mechanism from oil price to your cost of living is not complicated. Fuel prices rise. Transport costs rise. The cost of moving every product from every factory to every shelf in every store rises with them.
Farmers pay more to irrigate, harvest, and deliver. Manufacturers pay more to produce. Retailers pay more to stock. And every one of those cost increases flows, eventually, to the consumer.
The SARB’s own calculation and what it means for interest rates
The South African Reserve Bank’s (SARB) own modelling shows that a 20% increase in the oil price risk premium combined with a 10% Rand depreciation pushes headline inflation to 4.5% in 2026 and 5.5% in 2027, keeping it above target as far out as 2028.
Under this scenario, the SARB projects the policy rate could rise over 8% by the end of 2026 before gradually declining.
Let that sink in. We entered 2026 with inflation at 3% and markets pricing in further rate cuts. The SARB’s own stress scenario now puts inflation at 5.5% next year and rates potentially going up, not down.
This means interest rates are likely to stay higher for longer, and may even increase, depending on the intensity of the conflict.
Higher rates, sustained for longer than the market expected, are not neutral for investment portfolios. They are a direct headwind for growth stocks, property, and highly indebted companies. They raise the cost of borrowing for businesses and households alike. And they extend the period of consumer financial stress that was supposed to be ending.
The second-round risk…
The SARB distinguishes carefully between first-round and second-round effects and the distinction matters enormously.
First-round effects are direct: fuel prices go up, and that shows up immediately in the CPI basket. The Reserve Bank can look through these, because they are mechanical and temporary. Policy cannot prevent them.
Second-round effects are what happen next: businesses raise prices more broadly to protect their margins. Workers demand higher wages to compensate for the cost-of-living increase. Inflation expectations shift upward and become self-fulfilling. This is where an oil shock becomes an inflation problem and where central banks feel compelled to respond with higher rates.
Whether second-round effects materialise depends heavily on how long the conflict lasts. A short war means a temporary spike that fades. A prolonged disruption to the Strait of Hormuz embeds higher costs across the economy and changes behaviour.
Right now, nobody knows which scenario we are in.
What investors should actually do
The instinct during an inflation shock is often to do nothing – to wait and see.
That instinct is understandable.
But it can also become extremely expensive.
Because inflation quietly destroys the real value of cash, fixed-income savings, and investments whose earnings cannot grow fast enough to keep up with rising prices.
And when interest rates remain elevated for longer than markets expect, the pressure spreads further.
Highly indebted businesses struggle.
Consumers cut spending.
Property and speculative growth shares come under pressure.
The winners in these environments tend to be very different kinds of businesses.
Not companies dependent on cheap borrowing or optimistic market sentiment.
But businesses generating real cash flow… selling essential products and services… and possessing enough pricing power to pass rising costs on to customers without destroying demand.
Importantly, these are often the same businesses capable of continuing to pay investors substantial dividend income through volatile economic periods.
That matters enormously.
Because when inflation rises and markets become unstable, reliable dividend income stops being a “nice extra”.
It becomes one of the most important forms of portfolio protection an investor can own.
Which is exactly why, in Real Wealth, we focused on five carefully selected South African income shares in our special report: Retire Rich with Dividends
These are not speculative growth stories.
They are established, cash-generating businesses specifically selected for their ability to continue producing strong shareholder income through difficult economic conditions — including periods of inflation, elevated interest rates, and market uncertainty.
Several currently offer dividend yields significantly above inflation… while still trading at attractive valuations.
And in a world where inflation risks are rising again, that combination is becoming increasingly valuable.
Inside the report, we reveal:
• Five high-income South African shares positioned for the current environment
• Dividend yields ranging from 7% to over 10%
• Companies with strong balance sheets and resilient cash flows
• And shares still trading below what we believe their businesses are truly worth
Most investors spend inflationary periods trying to predict what central banks will do next.
The smarter investors focus on owning businesses that can keep paying them regardless.
That’s where long-term wealth is usually built.
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