Petrol price cut may stay central bank's hand
November 2, 2005
Johannesburg - The 31 cents per litre cut in the retail petrol price that was implemented at midnight on Tuesday lowers the risk of a pre- emptive interest rate hike.
"The deterioration in the inflation outlook cannot be ignored. The increased risk of possible pass-through leading to pronounced second-round effects on CPIX inflation must inform policy going forward," the South African Reserve Bank (Sarb) Monetary Policy Committee (MPC) said at its last meeting on October 13.
This hawkish tone was continued by Sarb governor Tito Mboweni on October 20 and 21, but at the I-Net Bridge Bond Exchange Spire Awards ceremony on October 25, he moderated his tone and said he was only 60 percent to 70 percent concerned, rather than 90 percent.
"As noted in the MPC statement, the Bank will continue to monitor the inflation outlook and will not hesitate to respond to any signs of second-round inflationary pressures," Mboweni said.
T-Sec economist Mike Schussler said he could find no evidence of second-round effects and according to his calculations, dis-inflationary trends were intact despite the 59.5 percent rise in the Gauteng retail petrol price from 378 cents per litre in January 2004 to a record 603 cents per litre.
At midnight, the price dropped to 372 cents per litre and a further decline to around the 350 cents per litre level is expected on December 7, as the daily over-recovery on October 31 was 57.665 cents per litre.
The Sarb did surprise the market by cutting rates by 50 basis points.
CPIX inflation (headline inflation excluding mortgage costs) has been below the midpoint of the Sarb's inflation target range of 3-6 percent year-on-year (y/y) for 19 out of the past 24 months and eased to 4.7 percent in September from 4.8 percent in August.
If transport running costs, which are mostly petrol, are excluded from CPIX, then this category eased to a 3.5 percent increase in September from 3.7 percent in August.
AFX reported that crude oil prices were below $60 per barrel in Asian trading hours on Tuesday, on expectations that US inventory data will be stronger, and as warmer weather in the US dented demand, dealers said. The price of sweet US crude oil peaked at above $70 per barrel at the end of August.
Assurances by Opec of ample supplies during winter in the northern hemisphere and expectations of a further rise in US interest rates also helped keep prices in check, they said. - I-Net Bridge
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