The oil price has more than halved in the
past year, giving South Africa some relief, but the tanking rand means consumers
are unlikely to see much benefit.
Because SA is an importer of crude, the fiscus will enjoy some comfort as cheaper oil prices may help narrow the current account
deficit. Oil prices have dropped to below $30/barrel due to a supply
glut, a situation unlikely to change after sanctions against Iran were
lifted at the weekend.
This is from levels above $60/barrel last year.
But for SA, a sharply weaker rand will cancel the gains from oil at this level, say economists.
Although some of the pressure might come off the Reserve Bank’s monetary policy committee, the effect of the weak rand on inflation would still necessitate interest rate hikes this year, Credit Guarantee Insurance senior economist Luke Doig said on Monday.
The monetary policy committee would be faced with the difficulty posed by rising inflation and tepid economic growth, Mr Doig said.
The committee meets next week and is expected to hike rates in the face of rising inflation, mainly due to rand depreciation.
The softer rand will also push food prices up as SA has to import more to make up for the shortfall caused by the drought.
SA — the continent’s largest producer — has had to import maize this year. Food prices, at 14%, carry a much larger weight in the inflation basket, while petrol makes up 5.7%. This means that higher food prices are a greater inflation risk and, thus, receive more attention from the central bank.
The spot price of white maize touched a record high of R5,140/ton on Monday. Grain prices have been creeping up for the past year due to the drought ravaging SA in what has been the hottest and driest summer in more than a century.
The white maize spot price ended 2014 at R2,121/tonne, so the price has more than doubled since then. It rose nearly 120% last year and is already up more than 10% since the start of this year. The drought and the higher grain prices have forced livestock farmers to slaughter early, which has brought meat prices down in the short term.
This is unlikely to last, however, as there is likely to be a shortage of red meat, which will send prices soaring again.
Bennie van Zyl, GM of the Transvaal Agricultural Union (TAU), says the price of SA’s staple food at this level will have far-reaching repercussions.
"High prices do affect food security, though food will remain available," he said. "Of greater concern is the ripple effect farm failures will have on rural communities. When farmers go bankrupt, it has a degenerative socioeconomic effect."
On Monday, the United Nations World Food Programme (WFP) said an estimated 14-million people in Southern Africa faced hunger this year due to the poor harvests.
The El Nino weather system was worsening the drought this rainy season, hurting crops again, the agency said.
"With little or no rain falling in many areas and the window for the planting of cereals closing fast or already closed in some countries, the outlook is alarming," the WFP said. "The number of people without enough food could rise significantly over coming months, as the region moves deeper into the so-called lean season," it said.
Besides SA, drought and prolonged dry spells have also curbed agricultural output in Zambia, Zimbabwe and Malawi.
The region may have to import as much as 10.9-million tonnes of grains such as maize, wheat, and soybeans, according to Agriculture Minister Senzeni Zokwana.
On Monday, by the close of local trading, the rand firmed slightly after intervention by China’s central bank in the yuan currency helped ease global investor aversion towards emerging market assets. But trade was thin due to a holiday in the US.
Stocks inched lower to end just in the red as a rebound in European shares fizzled after the European Central Bank said it would quiz eurozone lenders about high levels of bad loans.
In early evening trade, the rand inched 0.09% firmer to R16.7670/$, hanging on to earlier gains.
On the JSE, the benchmark Top40 index slipped 0.03% to 42,093, while the wider all-share index finished 0.18% lower at 46,876.
World stock markets mostly fell on another dizzying plunge in oil prices and stubborn fears over China and the global economy. Equities extended losses in most of Asia and Europe, with energy firms taking a hit from a fresh collapse in the cost of crude oil. The Milan Stock Exchange also dived on swirling speculation over the health of several Italian banks, as did the Lisbon share market.
Global oil prices slumped beneath $28 per barrel after the lifting of sanctions against key producer Iran under its nuclear deal with world powers.
Investors also remain on edge over China’s economic slowdown — and its effect on the faltering world economy. "European markets are doing their best to shrug off yet another negative session in Asia, as investors attempt to gauge whether or not the market has reached a good buying point," said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.
With Neels Blom, Bloomberg, Reuters and AFP
This is from levels above $60/barrel last year.
But for SA, a sharply weaker rand will cancel the gains from oil at this level, say economists.
Although some of the pressure might come off the Reserve Bank’s monetary policy committee, the effect of the weak rand on inflation would still necessitate interest rate hikes this year, Credit Guarantee Insurance senior economist Luke Doig said on Monday.
The monetary policy committee would be faced with the difficulty posed by rising inflation and tepid economic growth, Mr Doig said.
The committee meets next week and is expected to hike rates in the face of rising inflation, mainly due to rand depreciation.
The softer rand will also push food prices up as SA has to import more to make up for the shortfall caused by the drought.
SA — the continent’s largest producer — has had to import maize this year. Food prices, at 14%, carry a much larger weight in the inflation basket, while petrol makes up 5.7%. This means that higher food prices are a greater inflation risk and, thus, receive more attention from the central bank.
The spot price of white maize touched a record high of R5,140/ton on Monday. Grain prices have been creeping up for the past year due to the drought ravaging SA in what has been the hottest and driest summer in more than a century.
The white maize spot price ended 2014 at R2,121/tonne, so the price has more than doubled since then. It rose nearly 120% last year and is already up more than 10% since the start of this year. The drought and the higher grain prices have forced livestock farmers to slaughter early, which has brought meat prices down in the short term.
This is unlikely to last, however, as there is likely to be a shortage of red meat, which will send prices soaring again.
Bennie van Zyl, GM of the Transvaal Agricultural Union (TAU), says the price of SA’s staple food at this level will have far-reaching repercussions.
"High prices do affect food security, though food will remain available," he said. "Of greater concern is the ripple effect farm failures will have on rural communities. When farmers go bankrupt, it has a degenerative socioeconomic effect."
On Monday, the United Nations World Food Programme (WFP) said an estimated 14-million people in Southern Africa faced hunger this year due to the poor harvests.
The El Nino weather system was worsening the drought this rainy season, hurting crops again, the agency said.
"With little or no rain falling in many areas and the window for the planting of cereals closing fast or already closed in some countries, the outlook is alarming," the WFP said. "The number of people without enough food could rise significantly over coming months, as the region moves deeper into the so-called lean season," it said.
Besides SA, drought and prolonged dry spells have also curbed agricultural output in Zambia, Zimbabwe and Malawi.
The region may have to import as much as 10.9-million tonnes of grains such as maize, wheat, and soybeans, according to Agriculture Minister Senzeni Zokwana.
On Monday, by the close of local trading, the rand firmed slightly after intervention by China’s central bank in the yuan currency helped ease global investor aversion towards emerging market assets. But trade was thin due to a holiday in the US.
Stocks inched lower to end just in the red as a rebound in European shares fizzled after the European Central Bank said it would quiz eurozone lenders about high levels of bad loans.
In early evening trade, the rand inched 0.09% firmer to R16.7670/$, hanging on to earlier gains.
On the JSE, the benchmark Top40 index slipped 0.03% to 42,093, while the wider all-share index finished 0.18% lower at 46,876.
World stock markets mostly fell on another dizzying plunge in oil prices and stubborn fears over China and the global economy. Equities extended losses in most of Asia and Europe, with energy firms taking a hit from a fresh collapse in the cost of crude oil. The Milan Stock Exchange also dived on swirling speculation over the health of several Italian banks, as did the Lisbon share market.
Global oil prices slumped beneath $28 per barrel after the lifting of sanctions against key producer Iran under its nuclear deal with world powers.
Investors also remain on edge over China’s economic slowdown — and its effect on the faltering world economy. "European markets are doing their best to shrug off yet another negative session in Asia, as investors attempt to gauge whether or not the market has reached a good buying point," said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.
With Neels Blom, Bloomberg, Reuters and AFP
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