How rising oil prices above $93 threaten South Africa's inflation relief

The recent moderation in inflation to 4.3% from 5% is unlikely to provide lasting relief if energy prices remained elevated.

South African motorists are facing renewed fuel-price pressure as Brent crude climbs above $93 a barrel, threatening to undo the inflation relief that households received only weeks ago.

Brent crude was trading at $93.24 a barrel, according to the latest Trading Economics data, after rising sharply in recent weeks amid continued uncertainty around the reopening of the Strait of Hormuz.

For South African consumers, the higher oil price matters because the country imports most of its crude oil, making local fuel prices sensitive to movements in international prices as well as the rand.

Andre Cilliers, currency strategist at TreasuryONE, said the rand was trading at about R16.06 to the dollar, supported by a softer US dollar and firmer emerging-market and commodity currencies.

At the end of the third week of August, the Central Energy Fund's latest figures showed an under-recovery equivalent to an increase of 83 cents a litre for 93 octane petrol and 94 cents for 95 octane petrol.

The pressure is considerably greater for diesel, with the CEF showing an increase of R2.87 a litre for 0.05% sulphur diesel and R3.07 for 0.005% sulphur diesel. Diesel can move much more sharply because its international benchmark price has been particularly sensitive to refinery/product shortages and disruptions to middle-distillate supply.

These are not yet the final September fuel-price changes, but they indicate the direction in which prices are moving as the month progresses.

The pressure follows a period of significant relief for motorists in July, when lower international oil prices contributed to a substantial reduction in local fuel prices. Annabel Bishop, Investec chief economist, said the R1.96 a litre reduction in the petrol price in July had reduced monthly inflation by 0.4 percentage points.

Without fuel prices, July's headline inflation rate would have been 3.7% rather than the actual 4.3% reading, said Bishop.

Fuel inflation nevertheless remained high at 20.6% year-on-year in July, with petrol R4.23 a litre more expensive than a year earlier and diesel R5.40 a litre higher, Bishop said.

Dr Lerato Ntuli, economist at Anchor Capital, said July's lower inflation rate was partly the result of lower fuel costs and warned that the benefit was likely to prove temporary. Petrol 95 and diesel prices fell by about 7% and 11% respectively in July, providing relief to transport costs and headline inflation but diesel increased by a further 6% in August.

Ntuli said the recent recovery in Brent crude presented a renewed risk to South Africa's inflation outlook, given the country's reliance on imported fuel and the ongoing conflict in the Middle East.

Brent had risen above $90 a barrel from around $70 at the beginning of July, Ntuli noted, highlighting the sensitivity of South African inflation to global energy prices.