Drop in petrol price will help Reserve Bank keep rates on hold for longer

Although September’s 18c/litre petrol price decrease will reduce the monthly consumer inflation rate by a very modest 0.1 percentage points‚ this will still help to ease inflationary pressure and allow the Reserve Bank to leave interest rates unchanged for an extended period‚ according to Stanlib chief economist Kevin Lings.

The petrol price will drop by 18c/litre on Wednesday after a sharp 99c/litre decline in August. Diesel will cost 48c/litre less while the paraffin price will decline by 63c/litre‚ and gas by 9c/kg.

Since the peak in April 2014‚ the petrol price has now declined by total of R2.22/litre or by 15.4%.

“Unfortunately‚ other cost pressures are still likely to push consumer inflation over 7% in late 2016‚ but at least the upcoming spike in inflation appears likely to be much more modest than what was envisaged in early 2016‚” Lings said.

Lings warned‚ however‚ that the petrol price could increase in coming months as the rand was keeping a weakening bias.

“Worrying‚ the rand exchange rate remains extremely volatile‚ but with a weakening bias. This suggests that the petrol could increase in the coming months. Clearly‚ though‚ a lot can happen to the exchange rate and oil price in a month‚” Lings said.

The petrol price drop would have been more that 18c/litre had the rand maintained the firmer levels seen at the beginning of August. The rand weakened sharply towards the end of August‚ first on domestic political risk and later on global developments.

The domestic political risk relates to the police’s special investigative unit‚ the Hawks‚ requesting Finance Minister Pravin Gordhan to present himself before it for a warning statement‚ sparking market jitters that the minister would soon be charged. The global developments are on uncertainty over when the US Federal Reserve will hike rates again.