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OIL PRICE DROP HELPS KEEP INFLATION WITHIN RESERVE BANK’S TARGET RANGE

By 22nd Jan 2015Sep 20th, 2019No Comments

The latest figures were the fourth consecutive reading that had fallen within the Reserve Bank’s target range of 3% to 6%. The index recorded an annual increase of 5.3% when December 2014 is compared with December 2013. This is down from the 5.8% recorded a month earlier. SEIFSA Economist Tafadzwa Chibanguza said the disinflationary trend was largely assisted by the persistent fall in the oil price and the further downward trajectory in the oil price in January 2015.

The petrol price cut in Rand terms for January also meant that further easing of the index was to be expected in 2015. “With falling global oil prices, and with the dynamics in that market expected to persist a while longer, inflation for the time being will not be so much of a concern to the South African Reserve Bank,” Mr Chibanguza said. He added that the most significant risk the Reserve Bank would now try to manage through the interest rate would be to avoid a complete blow out of the Rand once the United States Federal Reserve begins tightening its balance sheet. However, easing consumer inflation made this task a little easier.

Mr Chibanguza warned that while the fall in oil prices and its impact on inflation was expected to outweigh the inflationary pressure created by the weaker exchange rate in the headline CPI, an eye should be kept out on core inflation. “Though it eased to an annual rate of 5.7% in December 2014, down from the annual 5.8% recorded a month earlier, the weaker exchange rate will in time begin to catch up to the index,” said Mr Chibanguza.

However, all else taken into account, the current disinflationary trend was welcomed since it is expected to offer much-needed relief to households, thus giving them the opportunity to restructure their balance sheets before any further rate hiking.

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