The recent slowdown in inflation to 4.3% from the previous 5% is unlikely to provide long-term relief if energy prices remain high. Drivers in South Africa are once again facing pressure due to rising fuel costs as the price of Brent crude oil exceeded $93 per barrel, jeopardizing the inflation reduction that households felt just a few weeks ago.
According to the latest data from Trading Economics, the price of Brent crude was $93.24 per barrel after a sharp rise in recent weeks, linked to ongoing uncertainty surrounding the resumption of traffic through the Strait of Hormuz. Since the country imports most of its crude oil, local fuel prices are sensitive to both global prices and the Rand exchange rate.
Andre Sillieres, a currency strategist at TreasuryONE, noted that the Rand traded around 16.06 to the dollar, supported by the weakening US dollar and the strengthening of emerging market and commodity currencies.
Situation at Gas Stations
According to the latest data from the Central Energy Fund for the third week of August, there was an undercoverage equivalent to an increase of 83 cents per liter for 93 octane gasoline and 94 cents for 95 octane gasoline. The pressure is felt more significantly regarding diesel fuel, where the CEF recorded an increase of 2.87 per liter for 0.05% sulfur diesel and 3.07 per liter for 0.005% sulfur diesel. Diesel is more sensitive to sharp changes because its international benchmark price heavily depends on refinery capacity shortages and disruptions in middle distillate supplies.
These figures do not yet reflect final fuel price changes for September, but they indicate the trend of price movement as the month progresses. This pressure follows a period of significant relief for drivers in July, when lower international oil prices led to a substantial decrease in local fuel prices.
Annabel Bishop, Chief Economist at Investec, reported that the 1.96 per liter drop in gasoline prices in July helped reduce monthly inflation by 0.4 percentage points. She stated that without fuel prices, the inflation rate in July would have been 3.7% instead of the actual 4.3%. However, Bishop noted that fuel-related inflation remained high in July at 20.6% year-on-year: gasoline cost 4.23 per liter more than a year ago, and diesel 5.40 per liter more.
Risks of Increase
Dr. Lerato Ntuli, an economist at Anchor Capital, pointed out that the lower inflation rate in July was partly due to reduced fuel costs, warning that this benefit is likely temporary. In July, prices for 95 octane gasoline and diesel fuel fell by approximately 7% and 11% respectively, easing transport costs and overall inflation; however, diesel fuel increased by another 6% in August.
Ntuli emphasized that the recent recovery in Brent crude prices creates a new risk for South Africa's inflation forecasts, given the country's reliance on fuel imports and the ongoing conflict in the Middle East. She noted that Brent rose above $90 per barrel from around $70 at the beginning of July, demonstrating South Africa's inflation sensitivity to global energy prices.
Niki Weimar, Chief Economist at Nedbank, similarly warned that inflation risks are now 'stacked towards an increase,' citing oil price shocks, fertilizer supply constraints, weather risks, and expectations of higher inflation. Weimar forecasts that inflation will remain above 4% by the end of 2026 and believes that the recent slowdown is unlikely to bring sustainable relief if energy prices remain high.
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