South African inflation picked up more sharply than expected in June, bolstering expectations that the central bank will deliver a second consecutive interest rate hike on Thursday.

Annual headline consumer inflation accelerated to a two-year high of 5.0% in June from 4.5% in May, data from Statistics South Africa showed on Wednesday. Economists polled by Reuters had expected a reading of 4.7%.

The transport category was the largest contributor to both the annual and monthly rises in the Consumer Price Index, as the Iran war sent fuel prices sharply higher.

Annual core inflation, which strips out volatile items like food and energy, came in at 4.1% in June, also above economists' forecast for a reading of 3.9%.

RATE HIKE NOW LOOKS MORE CERTAIN

The South African Reserve Bank aims to keep inflation at 3% and will announce its next interest rate decision on Thursday.

The majority of analysts polled by Reuters were predicting a rate hike even before Wednesday's inflation reading.

"The table is laid for a 25 basis point hike in interest rates," said independent economist Elize Kruger.

Since the last policy meeting in May, a survey showed a sharp rise in inflation expectations, a measure closely watched by the central bank.

The bank raised its inflation forecasts for 2026 and 2027 to 4.4% and 3.7%, respectively, in May, from previous estimates of 3.7% and 3.3%.

"The unexpected upside surprise in the June CPI print, along with the deterioration in household inflation expectations, both seal the case for July tightening," Standard Chartered economist Razia Khan said.