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Falling oil price most likely to ease inflation

By unknown | Nov 24, 2008 | COMMENTS [ 0 ]

Lihle Z Mtshali

Lihle Z Mtshali

The declining oil price is expected to help bring down South Africa's inflation, taking it to a single digit at the beginning of next year.

Stats SA releases the CPIX (inflation index excluding interest rates on mortgages) figure for October on Wednesday and the consensus among economists is that inflation will continue the downward trend it started in September.

Inflation eased to 13percent year-on-year in September from 13,6percent in October and Standard Bank's group economics division expects an easing to 12,5percent in October.

"The petrol price reduction of 25c/l in October will further temper inflationary pressures from other consumable goods, such as personal care and household consumables," Standard Bank economists said.

Karen Chow, market analyst at Econometrix, agreed. "The decrease in the petrol price in October will definitely help bring inflation down quite a lot," she said.

Even though the rand has been volatile in the past month and we buy oil in US dollars, "the magnitude of the decline in the oil price exceeds that of the decrease in the rand's value", said Chow.

The rand is still trading above R10/$, while oil prices slipped below $50 a barrel on Friday and touched three-year lows.

Econometrix forecasts inflation in October will be 12,4percent, helped not only by the petrol price drop, but also the slowdown in food prices over the past two months.

Chow said a further slowdown in the prices of food could be expected as the price of oil continued its downward trajectory. "The trend over the next two months will be large decreases in inflation due to lower oil and food prices and we expect inflation to be at 10percent by the end of the year," said Chow.

Another cut that will come in handy for distressed consumers in time for Christmas is that of the petrol price at the end of November, which will come into effect on December 3.

Chow expects the Department of Minerals and Energy to announce a R1,40 cut on Friday.


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