Our weekly podcast by Kevin Lings:

Fuel price shock in April likely to feed into inflation and interest rates

In this podcast, STANLIB’s chief economist, Kevin Lings, discusses the effect of the oil price on SA fuel prices, currently pointing to petrol increasing by around R6.50 a litre and diesel by R11 a litre in April. This is expected to cause shocks in the consumer and business sectors and feed into inflation, taking the inflation rate from a comfortable 3% to over 4.5%. The Reserve Bank is expected to keep rates on hold but to issue a hawkish statement.

He also discusses interest rate developments around the world, where about 15 significant central banks have held meetings, and most have opted to keep rates on hold. However, they have signalled that if oil prices remain elevated and feed into broader inflationary pressures, they may be forced to hike rates.

The focus areas during the week included:

• The US equity market declined for the 4th consecutive week in response to ongoing geopolitical tensions, volatile oil prices, persistent inflation concerns, and a somewhat ambivalent tone from Federal Reserve chair Jerome Powell at the Federal Open Market Committee (FOMC) press conference. The S&P 500 declined by 1.9% in the week and has lost 5.4% of its value since the war in Iran began on 28 February. On average, the S&P 500 experiences approximately three 5% pullbacks and one 10% pullback each calendar year. Within the S&P 500 Index, energy was, unsurprisingly, the best-performing sector by a wide margin.
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• The STOXX Europe 600 Index declined by a substantial 3.8% in the week and is down a substantial 9.6% since the Iran war started. The European market has been particularly concerned about the damage inflicted on Qatar's natural gas terminals. Evidently, Qatar’s natural gas export capacity has been reduced by roughly 17%, with repairs expected to take three to five years, according to Qatar Energy. The Nikkei 225 Index declined by 0.8% and the broader TOPIX Index was down 0.5% in a holiday-shortened week (Japan’s stock markets were closed on Friday). This is despite the Japanese government releasing oil from its strategic reserves to help stabilise domestic supply and limit price increases. The SA All Share Index fell by a further 4.2% last week and is now down 14.3% since the Iran war started. Among SA equities, the Resources 10 is down 26.1%, the Financial 15 fell by 11%, and the Industrial 25 lost a more modest 5.3% of its value.
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• The yield on the US 10-year government bond ended the week at 4.39%, up from 4.28% at the end of the prior week, as higher oil prices have pushed up inflation expectations and reduced expectations for US interest rate cuts. One day prior to the start of the Iran war, the US 10-year yield was at 3.97%.
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• Last week the rand depreciated by 0.4% against the US dollar, breaching R17.00/$ for the first time since 10 December 2025. Since the Iran war started at the end of February, the rand has weakened by 6.4% against the dollar, which has itself benefited (marginally) from increased demand for traditional safe-haven assets. The rand’s pronounced weakness partly reflects a near-term reversal of SA’s recent favourable terms of trade, including the combination of a higher oil price and a declining gold price.

Below are some of the key price movements since the Iran war started:

• The US Federal Open Market Committee (FOMC) decided to leave the Federal Funds Target Interest Rate unchanged at a range of 3.50% to 3.75%. This was in line with market expectations. One member of the FOMC, Stephen Miran, dissented, preferring a cut of 25 bps. The Fed started its interest rate-cutting cycle back in September 2024 and has cut rates on six separate occasions and by a total of 175 bps since then. The Fed highlighted that the implications of the Iran war are uncertain and revised up its 2026 inflation forecast from 2.4% in December to 2.7%. However, it also raised its 2026 GDP growth estimate from 2.3% in December to 2.4% – partly reflecting more conviction about the growth in productivity. The upward revision to the GDP forecast is strange, given that the oil price has risen by more than 40% since the Iran war started. This would suggest that (at this stage) the FOMC does not expect the oil price to remain extremely high for an extended period. Regarding the outlook for interest rates, the FOMC did not change its view from the December FOMC meeting. In essence, FOMC members still see room for one additional interest rate cut before the end of 2026. During the FOMC press conference, Powell highlighted that the tariff impact on inflation should dissipate during 2026, which should allow the Fed to cut rates despite the high oil price – again, that would only make sense if the oil price increase is short-lived and the impact of tariffs on inflation starts to dissipate meaningfully. Powell highlighted that interest rates are currently “moderately restricted” or "in the high range of neutral”, which provides the scope for some further easing of monetary policy later in 2026, but this would require further progress on inflation. Powell also highlighted that while job growth is worryingly low, the labour force has not increased, which is why the unemployment rate remains contained.
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• US producer inflation accelerated sharply in February, rising by 0.7% m/m. This is up from 0.5% m/m in January and the highest reading since July 2025. On an annual basis, the index rose by 3.4%, which is up from 2.9% in the prior month. Both readings were well ahead of market expectations. More than half of the February increase in PPI is attributable to services, which are now up 3.8% y/y, indicating that inflationary pressures remain sticky. PPI inflation is also significantly higher than CPI at 2.4% – even before factoring in higher energy prices. Because some components of PPI feed through to personal consumption expenditures (PCE), the data will heighten investor concerns about core PCE inflation becoming entrenched well above the 2% target.
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• US weekly jobless claims eased to 205 000 this past week, down from 213 000 in the prior week and below market expectations of 215 000. Continuing claims, which reflect the total number of people receiving benefits, rose modestly to 1.86 million, as expected, suggesting some workers are taking longer to find new employment. These trends remain consistent with a stable labour market.
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• On Monday, the US National Association of Home Builders (NAHB) reported that its Housing Market Index, which gauges overall builder sentiment, rose one index point to 38 in March, with modest increases seen in all three of the index’s components. However, 37% of builders reported cutting prices during the month, and the NAHB noted that affordability remains a key concern. In addition, the US Census Bureau reported that new home sales in January fell to their lowest level since 2022, coming in at a seasonally adjusted annual rate of 587 000 compared with December’s revised 712 000. 
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• In February 2026, South Africa’s headline CPI inflation increased by 0.4% m/m, which was below market expectations for an increase of 0.5% m/m. Consequently, the annual rate of inflation slowed from 3.5% to 3.0%, against market expectations that inflation would moderate to 3.1%. The 3% inflation outcome is to be applauded given the context of the new 3% inflation target, BUT the pending substantial increase in SA’s petrol and diesel price at the beginning of April is going to push SA's inflation rate substantially higher. The monthly increase in headline CPI of 0.4% reflected four key changes. The first was a 4.8% m/m increase in medical aid insurance, which is normally measured in February. While an increase of 4.8% in a month might appear substantial, it pulled the annual rate of medical aid inflation sharply lower from 10.6% y/y to 6.5% y/y – although not all medical aid schemes have reported their annual increases. The second key change was a 0.4% m/m decline in food prices, which included a 1.1% m/m reduction in meat prices. This was a noticeable downside surprise since we had assumed further upward pressure on SA’s food inflation given the ongoing difficulties containing the current outbreak of foot and mouth disease. The third key change was a 3.1% m/m decline in the fuel price, which largely reflected the 65c/l reduction in the petrol price at the start of February. Lastly, there was a "residual" increase in the month which added 0.2 percentage points to the monthly rate of change in inflation.
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• SA retail sales increased by 0.9% m/m in January 2026, up from a 0.6% decline in December 2025. Over the past year, retail spending has risen by an impressive 4.2% y/y (in real terms) and has achieved a 12-month annual average growth rate of 3.5%, which is robust growth given the wide range of constraints the SA economy is currently facing. In that regard, it is important to highlight that the growth in retail activity has far outpaced the performance of most other economic sectors during the past 18 months, helped by the combination of subdued inflation (hence stronger growth in real disposable income), six cuts in interest rates since September 2024, and significant “two-pot” withdrawals. Unfortunately, given that the international oil price (Brent) has increased by 47.1% since the Middle East crisis began, the average under-recovery on SA’s petrol price is currently R5.19/l. If the oil price and exchange rate remain at current levels for the remainder of March, then the petrol price would be expected to rise by around R6.30/l in the beginning of April. (The projected increase in the diesel price at the beginning of April is considerably higher). This would immediately put enormous downward pressure on retail spending, depending on how long the oil price remains elevated. There is also the risk that many businesses will look to pass on some of the fuel price increase to customers, which will exacerbate downward pressure on the household sector.
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• As expected, the European Central Bank (ECB) kept interest rates on hold at its policy meeting on Thursday. However, ECB president Christine Lagarde warned that higher prices for oil and gas will have a "material impact” on near-term inflation and noted that the region’s central bank will keep a close watch on incoming information to calibrate its policy response. The ECB raised its inflation forecast for 2026 to 2.6%, up from 1.9% in December. The Swiss National Bank and the Riksbank, Sweden's central bank, also left their policy rates on hold.
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• As expected, the Monetary Policy Committee of the Bank of England left its key interest rate on hold at 3.75%, but it warned that a prolonged energy shock would likely drive up inflation and could pave the way for higher interest rates. Separately, the central bank’s financial services regulatory body, the Prudential Regulation Authority, unveiled proposals designed to enhance liquidity and protect banks during times of crisis.
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• The Bank of Japan (BoJ) left its policy interest rate unchanged at 0.75%, in line with market expectations. The decision was not unanimous, with one policymaker advocating for a rate increase. In its Statement on Monetary Policy, the BoJ emphasised the need to closely monitor developments in the Middle East, global financial and capital market volatility, and the sharp rise in oil prices. While the central bank expects inflation to temporarily moderate below its 2% target, higher energy costs are likely to push inflation higher.
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• Japan’s exports rose by 4.2% y/y in February 2026, well above the consensus estimate of 1.9%, but down from growth of 16.8% y/y in January. Exports to Asia were modestly positive, while sales to the EU saw double-digit gains. In contrast, exports to the US and China declined, although the decline in trade with China partly reflected the timing of the Lunar New Year holiday. Japan’s imports rose by 10.2% y/y, which was below consensus for an increase of 11.3%, but sharply up from a decline of 2.6% y/y in January. Overall, Japan’s trade balance swung to a modest surplus in February, against expectations of a meaningful deficit.
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• China’s January and February activity data surprised modestly to the upside. Industrial production rose 6.3% y/y, while retail sales increased by 2.8% y/y, both exceeding market expectations. Fixed asset investment grew 1.8%, marking a tentative recovery from 2025’s decline, driven by infrastructure spending, which partially offset property investment weakness (China publishes combined data for January and February to smooth Lunar New Year holiday distortions).
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• China’s new home prices across 70 cities declined by 0.28% m/m in February compared with a drop of 0.37% in January. On a yearly basis, prices were down 3.2%. The Chinese government has introduced incremental measures to support the residential property sector, including easing home buying restrictions for non residents in major cities such as Shanghai and Beijing.
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• The Central Bank of Brazil (BCB) delivered a smaller-than-expected start to its easing cycle this week, cutting its benchmark Selic rate by 25 basis points to 14.75%. While a rate cut had been widely anticipated, some investors expected a cut of 50bps prior to the recent rise in global oil prices. The decision suggests a more cautious stance as policymakers weigh conflicting forces, namely, slowing domestic activity against renewed inflation pressures. The BCB acknowledged that high interest rates are beginning to cool the economy but emphasised that inflation remains a concern and that inflation expectations remain somewhat "unanchored".