Economic activity slumped to its lowest level in six months in May as South African households contended with substantial fuel price increases and an interest rate hike in response to volatile global oil prices resulting from the war between the US and Iran.The PayInc economic index, which reflects the value of all electronic transactions cleared through the payments utility, fell 2.1% to 102.6 in May compared with April, although it was still up 4% year on year. The index level is the weakest since November 2025.“The broad-based economic pain inflicted on households and businesses, following the outbreak of the Middle East conflict, has been very real with multiple consecutive fuel price increases and a 25 basis points (bps) interest rate hike announced towards the end of May,” PayInc said.The latest numbers (Karen Moolman) “These developments, in combination with confidence levels drifting, are likely to impact negatively on economic activity in coming months.”The South African Reserve Bank (SARB) raised its main policy rate by 25 basis points to 7% last month, saying inflation risks stemming from higher oil prices had intensified and the challenge of large and overlapping shocks would probably trigger second-round effects.SARB governor Lesetja Kganyago said that hopes for a quick end to the Middle East crisis, which has strangled the flow of oil through the Strait of Hormuz, have faded since the previous meeting of the monetary policy committee (MPC) in March.The volume growth in electronic funds transfer debit and credit transactions and secure debit order system DebiCheck, processed through PayInc, contracted slightly in May. Volumes in PayShap — a low-cost, real-time digital payment system for instantly sending and receiving money across different banks without sharing sensitive account numbers — and Real-Time Clearing showed modest increases. The total number of transactions cleared through PayInc fell to 185.5-million during the month from 186.3-million in April, although they were still up 5.2% year on year.Estimates by the Bureau for Economic Research show that higher fuel prices could add about R45bn in costs to the economy during the second quarter of 2026. The likelihood that businesses can fully absorb these increases is low, raising the prospect of broader inflationary pressures across the economy, PayInc said.“While the economy remains resilient, the latest PayInc Economic Index points to emerging pressures that could weigh on growth in the months ahead,” independent economist Elize Kruger said.Other recent timely economic indicators mirrored the May slowdown in the PayInc index, with the S&P Global South Africa purchasing managers’ index dipping to 49.6 in May from 51.6 in April, indicating a return to contraction in private sector activity. The Absa PMI for manufacturers fell to 50.8 from 52.6.