South Africa’s inflation rate was 3% in February 2026. A 21-year low. The SARB was projecting rate cuts. The economy was, by any reasonable measure, in the best monetary policy position it had been in for two decades.
Then the Iran war started. The Strait of Hormuz closed. Oil prices surged. And by April, inflation had jumped from 3.1% to 4% in a single month – the fastest one-month acceleration in years. The SARB, which had been preparing to cut rates, raised them instead to 7% in its first hike since 2023.
Most investors looked at that sequence and concluded: energy shock, higher petrol prices, higher inflation. Central bank responds. Story understood.
They’re looking at the wrong part of the story. The part that matters most – the part that the world’s leading investment houses are warning about in their June outlooks – hasn’t shown up in the data yet. And by the time it does, it will be too late to position for it.
First-round versus second-round Inflation: Why the distinction matters
The SARB’s own March 2026 MPC statement laid out the framework with unusual clarity: “The standard response to a supply shock is to look through first-round effects, which are unavoidable and cannot be stopped by interest rate changes. At the same time, central banks should be alert to second-round effects, where an initial shock triggers broad price increases.”
In plain language: first-round effects are the direct, mechanical pass-through of higher oil prices to fuel costs, electricity tariffs and freight rates.
They hurt, but they’re predictable and, if the oil price stabilises, they eventually fade.
Second-round effects are what happens next – when those higher costs embed themselves into wages, into services pricing, into inflation expectations – and stop being a temporary shock and start being a structural shift.
The critical insight from Amundi’s June 2026 Global Investment Views is this: “The key risk does not only reside in the first energy shock, but in its persistence and second-round effects — with headline inflation expected to be higher and core inflation following with a lag, especially where energy pass-through, wage effects and fiscal support are stronger.”
Core inflation following with a lag. That lag is what investors aren’t pricing. It means the most dangerous consequences of the Iran war energy shock are still several quarters away from showing up in the data and several quarters away from being reflected in asset prices.
How inflation transmits – the four stages
#1:The Energy Price Spike: Already Here
Petrol prices in South Africa are already 35% higher than in January. The Brent crude price surge from the Strait of Hormuz closure fed directly through to the fuel levy, transport costs and electricity tariffs.
#2: Corporate Margin Compression: Starting Now
Higher energy and transport costs hit company input costs before they hit wages. Businesses absorb what they can, then pass through what they can’t. In Europe, chemical and steel manufacturers have already imposed surcharges of up to 30% to offset surging electricity and feedstock costs.
In South Africa, the same dynamic is playing out in logistics, manufacturing and food production – sectors already under pressure from two consecutive quarters of manufacturing contraction.
#3: Wage Demands: The Dangerous stage, still ahead
When workers see their real wages eroded by higher fuel and food prices, they demand compensation. That’s rational, and it’s how first-round energy shocks become entrenched second-round inflation.
South Africa’s wage negotiation cycles mean that the full impact of the energy shock on labour costs won’t become visible in the data until late 2026 at the earliest and will feed through to services inflation well into 2027.
#4: Sticky Core Inflation: The Endgame, 2027
Core inflation, which strips out food and energy, is where second-round effects ultimately land. Once wages have risen to compensate for the energy shock, services providers raise their prices to cover higher wage bills. That’s when inflation becomes genuinely persistent rather than temporarily elevated.
The SARB’s severe scenario (sustained Brent crude above $100 per barrel) projects inflation at 4.56% in 2026 and 5.53% in 2027, with the policy rate forced to 8.17% by end-2026.
Why the global picture makes the SA picture worse
South Africa does not exist in a vacuum. The second-round effect risk is not uniquely South African – it’s a global phenomenon playing out at different speeds in different economies. And the global transmission mechanism matters directly to SA investors.
The OECD has identified the Iran war as “the dominant force shaping the global economic outlook” – projecting that if disruptions linger, global growth could slow from 2.1% in 2026 to 1.8% in 2027, levels not seen since the COVID-19 pandemic.
In Europe, the ECB has warned that major energy-dependent economies face high risks of stagflation – the particularly toxic combination of stagnant growth and persistent inflation that central banks have almost no effective tool to fight.
For South Africa, that global backdrop matters in two ways.
First, it keeps the rand under pressure – a weaker rand amplifies imported inflation, making the SARB’s job harder regardless of domestic wage dynamics.
Second, it reduces the growth environment into which SA’s export sectors are selling – particularly important for mining, agriculture and manufactured exports at a moment when China’s demand is also moderating.
The implications for your portfolio – what to watch and when
• Rate cuts are now a 2027 story, not a 2026 story
Any portfolio positioning that relied on SARB rate cuts in H2 2026 needs to be reassessed. The baseline now projects inflation returning to target in late 2027.
• Watch company’s results for margin compression signals
Stage two of the transmission mechanism (corporate margin compression) shows up in company results before it appears in official inflation data. JSE-listed companies in logistics, food manufacturing, chemicals and retail are the first places to look for evidence that input cost inflation is outpacing pricing power.
Companies that can pass through costs (pricing power, essential goods, contracted revenues) will separate sharply from those that cannot.
• Inflation-linked instruments deserve a second look
In a world where core inflation is surprising to the upside and the timeline for returning to target keeps extending, inflation-linked bonds (RSA inflation-linked bonds, or “linkers”) and real assets with inflation pass-through – infrastructure, agriculture, property with CPI-linked escalations – offer structural protection that nominal bonds can’t.
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