With the Brent crude oil price dropping to $50.47 (R704.09) a barrel just before Christmas on prevailing demand side fears (reaching R731a barrel), South Africa’s Central Energy Fund delivered a R1.23 a litre cut in the petrol price in January 2018.
This is significant from both an inflation and interest are point of view. Indeed, South Africa has seen petrol prices fall sharply since October 2018, with lower inflation now likely in December 2018, of closer to 4.4percent y/y, and in January 2019 of around 4percent y/y, down from the 5.2percent y/y that was recently published for November 2018.
This will lower the consumer price index (CPI) inflation outcome for 2019, but the base effect will likely boost inflation in 2020, as will likely larger electricity tariff increases than in recent years, raising it to potentially average 5.6percent y/y - with 2020 now the year that the Monetary Policy Committee will be targeting in 2019 re inflation.
The SA Reserve Bank targets inflation chiefly 12 to 18 months out, but also looks six to 24 months out. With CPI inflation likely to be closer to 5.7percent in 2020, an interest rate increase in the second half of 2019 (of 25 basis points) is possible for South Africa. However, much will depend on the US interest rate hike trajectory in 2019.