Strong rand and cheap oil give inflation a breather
Lower fuel prices won't have a push factor on inflation, with figures due out on Wednesday.
Image: Freepik
Moderate oil prices and a stronger rand, which pushed fuel costs lower this month, should help contain inflation.
Annabel Bishop, Investec chief economist, said, given the current contained oil price and the fairly stable – at the moment – rand, there is unlikely to be a push effect on fuel for inflation in October.
As of last Wednesday, all grades of fuel across petrol and diesel came down thanks to a combination of factors that included lower oil prices, and the relative rand strength against the dollar, Minister of Mineral and Petroleum Resources, Gwede Mantashe announced.
“The moderate oil prices and rand strength have been positive for fuel prices in South Africa, and so for inflation, with virtually no change in the petrol price signalled for October, which will then not impact October’s CPI outcome,” said Bishop.
Inflation is 3.4% currently.
According to the Department of Mineral Resources and Energy, the petrol price in South Africa is directly linked to the price of petrol quoted in US dollars at refined petroleum export-orientated refining centres in the Mediterranean area, the Arab Gulf and Singapore
Domestic fuel prices are, as a result, influenced by international crude oil prices, global supply and demand balances for petroleum products, and the rand/US dollar exchange rate.
Bishop said the rand is “not expected to see substantial movement against the US dollar currently for the rest of this year or next year. Oil prices are expected to remain moderate on moderate demand.”
US dollar weakness of 8.9% overall this year has seen the rand strengthen by 8.5% against the dollar in the same period, said Bishop.
“The rand has seen some stability this quarter to date, but as an emerging market currency is very vulnerable to financial market movements, particularly changes in financial market risk appetite, and so movements in US interest rate expectations,” said Bishop.
Pointing to continued low oil prices, Bishop said that Brent crude oil price “continues to average below $65/barrel this month, after the same last month, from nearer $70/barrel in September, as tariffs from the US still have a suppressing effect on growth expectations”.
Bishop added that there are concerns regarding the impact of US tariffs for both global and US economic growth, particularly for next year, leading to subdued oil markets.
Easing quotas had also weighed on oil prices, although the Organization of Petroleum Exporting Countries and allies has now said it will pause in its supply increases next year, with uncertainty still prevailing, Bishop said.
Traditionally, lower oil supplied have led to increased costs and OPEC+ is known to influence output to control the price.
Bishop noted that the International Energy Agency forecasts that demand for oil “will remain subdued over the remainder of 2025 and in 2026… well below historical trend, as a harsher macro climate and transport electrification make for a sharp deceleration in oil consumption growth”.
“In an environment of higher tariffs, the very moderate nature of oil prices on ample supply has helped contain inflationary pressures,” said Bishop.
“The oil outlook is contained, and as such highlights the likely modest nature of inflation as well but unexpected shocks to the system are always possible and would disrupt this expected case.”
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