South African Benefit From Oil Price Decline Seen as Temporary

(Bloomberg) — The benefit from the lower oil costs for South Africa’s economy will probably be temporary as the drop hasn’t passed through to wider prices and crude should increase further, Reserve Bank Governor Lesetja Kganyago said.

“Average wage settlements are still in the realms of 8 percent,” Kganyago said in a speech to a labor union published on the Pretoria-based Reserve Bank’s website on Tuesday. “Similarly, many price setters for goods and services are not passing on the benefits of lower prices to consumers.”

The price of Brent crude, the blend most used in South Africa, has climbed by 30 percent since reaching an almost six-year low on Jan. 13. The decline in prices helped to contain inflation in Africa’s second-largest economy, raising speculation that interest rates could drop this year.

Electricity shortages may also offset the boost to the economy from the reduced oil price, Kganyago said. Expected power constraints over the next three to four years were a major reason behind the central bank’s decision to cut its 2015 economic-growth forecast to 2.2 percent from 2.5 percent, he said.

Eskom Holdings SOC Ltd., which generates about 95 percent of South Africa’s electricity, is struggling to meet demand and implemented rolling […]

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