Cheaper oil, food put lid on inflation

THE PRICE of Brent crude oil fell below $91 a barrel yesterday, a price last seen in December 2010, from this year’s high of $124 in March.

The sharp tumble in global crude oil prices over the past few days has increased the size of the expected cut in the domestic petrol price next month to more than 70c a litre. This follows a 55c reduction at the beginning of this month.

Lower oil prices followed a slew of bad economic news, including a revision to the US growth forecast for the year by the Federal Reserve from 2.9 percent to 2.4 percent.

Nedbank Capital said the oil price was also affected by HSBC’s downbeat data release on China’s manufacturing sector and an unexpected rise in US crude inventories last week.

Lower food prices are also taking the heat out of inflation. The bank added that the domestic maize price had rocketed between the middle of 2010 and January this year, from R1 000 a ton to R2 800 a ton, due to adverse weather conditions across major world maize production areas.

The price has now fallen back towards R2 000 a ton. This has started feeding into consumer inflation figures.

Bread and cereal prices, which rose 10.6 percent year on year in April, added 7.6 percent last month.

Overall inflation has fallen back to 5.7 percent, within the Reserve Bank’s 3 percent to 6 percent target range.

Food and Agriculture Organisation director-general José Graziano da Silva said earlier this month that food prices were falling globally due to good harvests and stockpile increases.

The UN agency’s food price index averaged 204 points last month, down 9 points from April and the lowest since September 2010.

Recent growth and inflation data have changed the outlook for interest rates with the possibility of a further repo rate cut, from 5.5 percent, on the table.

Support for a cut came yesterday from the Reserve Bank Quarterly Bulletin, which showed growth in household spending slowed to an annualised 3.1 percent in the first quarter from 4.6 percent in the previous quarter.