The rand price of Brent crude oil – the benchmark for setting gasoline prices in South Africa – climbed above R1,200 ($83) a barrel this week for the first time since 2013.<\/p>\n
Back then, it marked the start of an interest-rate-raising cycle that saw the policy rate jump to 7% from 5% in six steps.<\/p>\n
With the gasoline price set to climb to a record on Wednesday – fueling transport and food costs – the consumer inflation rate will probably breach the 6% upper limit of the central bank\u2019s target range, making a rate increase in November all but inevitable, according to FirstRand Ltd.\u2019s Rand Merchant Bank unit.<\/p>\n
Bloomberg has also reported that the risk that South African inflation will overshoot the 6% upper limit of the Reserve Bank\u2019s target should not be underestimated given the volatile global environment – citing the Reserve Bank’s deputy governor Daniel Mminele.<\/p>\n
An extended and sizable deviation in price growth from 4.5% “would raise the risks of medium-term inflation expectations drifting back to, if not above, the top end of the range,” Mminele said in a copy of a speech posted on the central bank\u2019s website.<\/p>\n
The Reserve Bank said last month inflation will peak at 5.9% in the second quarter of next year and settle at 5.4% toward the end of 2020. While this is inside the institution\u2019s target band, the Monetary Policy Committee has made it clear it prefer price growth close to 4.5% rather than just below 6%.<\/p>\n
The MPC kept its benchmark rate unchanged at 6.5% last month, with three of its seven members favoring a tighter stance. Its next policy announcement is scheduled for Nov. 22 and forward-rate agreements starting in two months are pricing in a 60% chance of a quarter-point increase.<\/p>\n
“Exchange-rate depreciation, as well as the rising trend in world oil prices and uncertainties about future electricity tariff increases, pose the main upside risks to the outlook,” Mminele said.<\/p>\n
“While sub-par growth in demand seem to limit the pass-through to prices of higher input costs for now, the central bank \u201cwill act against any sign of second-round price effects from the recent rand exchange-rate and oil-price shifts,” he said.<\/p>\n
The rand has depreciated 14% this year against the dollar, the most among major currencies tracked by Bloomberg after Brazil\u2019s real, which has lost 16%.<\/p>\n