The biting interest rates hikes in South Africa may not be slowing down anytime soon in spite of the big petrol price drop expected in September to ease the elevated consumer prices.
Unaudited mid-month data from the Central Energy Fund indicates that motorists could be in for a big fuel price cut in September as the global price of Brent crude oil has softened below $95 per barrel.
The Automobile Association (AA) said yesterday that 95 unleaded petrol was expected to drop by around R2.60 per litre, while 93 unleaded might decrease by R2.45 per litre.
The wholesale price of diesel is expected to fall by around R2.30 a litre and the price of illuminating paraffin by almost R2 a litre.
The price of oil this year soared to its highest since 2008, climbing above $139 a barrel in March after Western countries imposed severe sanctions on Russia over its invasion of Ukraine.
But the easing of global oil prices following weak manufacturing data and fears of a global recession driven by slowing demand in major economies has raised hopes that the cost of living will ease somewhat.
Last month, the South African Reserve Bank (SARB) raised interest rates for a fifth time in a row, this time by 75 basis points from 4.75 percent to 5.5 percent to contain the surging domestic inflation, while signalling further aggressive monetary tightening ahead.
Inflation has remained above the SARB’s upper limit of the 3 to 6 percent target band, printing at 7.4 percent in June on high food and fuel prices.
Anchor Capital investment analyst Casey Delport said yesterday that while the SARB had indicated that it was committed to reining in inflation with increasingly hawkish rhetoric, early signs were emerging that global inflation pressures were cooling.
Delport said although this suggested that the hiking cycle in turn might be less pronounced than what markets had priced in, rates were in fact still expected to rise further in the months ahead, which will detract further from South African consumer’s disposable incomes.
“It is important to remember that the biggest positive changes in global CPIs (particularly that of the US) over the last month have come from oil,” Delport said.
“However, one cannot detract from the possibility of oil prices once again trending upwards -structural challenges to oil supply haven’t gone away - an issue the SARB is cognisant of.
“Key drivers in the SARB’s current deliberations remain near-term concerns over inflation expectations and second-round effects as a result of high and rising inflation to the end of 2022.”
The SARB’s forecast of headline inflation for this year is revised higher from 5.9 percent to 6.5 percent, with the average surveyed expectations of future inflation increasing to 6.6 percent.
Headline inflation is expected to revert to the mid-point of the target range by the fourth quarter of 2024, on the back of declining fuel and food inflation.
Investec chief economist Annabel Bishop said the SARB Monetary Policy Committee (MPC) decisions will track that of the Federal Open Market Committee (FOMC).
Bishop said the SARB tended to follow the FOMC, and the US inflation rate was not expected to be substantially near 2 percent by then, making hikes still likely.
“With the SARB aiming for 4.5 percent for South Africa’s consumer inflation rate, the outcomes between now and the next FOMC and MPC meetings will be unlikely to turn hawkish stances to dovish ones,” Bishop said.
“At best, 50 basis points instead of 75 basis points hikes may be delivered respectively at the two meetings.”
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