Our weekly podcast by Kevin Lings:

Oil price implications for inflation, and SA’s poor growth performance

In this podcast, STANLIB’s Chief Economist, Kevin Lings, discusses how the war in the Middle East, now in its 17th day and going on longer than most people anticipated, continues to affect the oil price. At over US$100 and with no end in sight to the war in the short term, there are implications for inflation, with most central banks not contemplating interest rate cuts and a risk-off trade unfolding on markets. US inflation data still looks good, but has yet to factor in the oil price. He also discusses SA’s GDP performance for the fourth quarter, which brought SA’s economic growth to 1.1% last year. A substantial increase in petrol and diesel could undermine SA’s growth dynamics.

The focus areas during the week included:

• Most US equity markets declined for the third consecutive week as the ongoing conflict in the Middle East and the resulting volatility in oil markets dominated headlines. The S&P 500 lost 1.6% of its value, the Dow Jones was down 2.0% and the Nasdaq 100 declined by 1.1%. Other sources of uncertainty – including heightened concerns around stress in private credit markets and ongoing developments in trade policy – also appeared to weigh on sentiment during the week. ‍
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• US Treasuries also posted negative returns during the week as uncertainty over the duration of the Middle East conflict and energy market impact on already-high core PCE inflation data helped push bond yields higher across most maturities.‍
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• The war in Iran, which started on Saturday 28 February, is in its 17th day. Understandably, the market’s attention is mainly centred on four key uncertainties – the duration of the conflict, the risk that the war spills over into a much more significant regional conflict, the extent of the disruption to oil supply and the movement of other goods moving through the Strait of Hormuz, and the implications for the oil price. None of these issues has been adequately resolved.
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• Below are some of the key price movements since the Iran war started:

• Month-to-date, the rand has lost a substantial 6.1% against the US dollar and is down 4.1% on a trade-weighted basis. In comparison, emerging market currencies in aggregate have lost a more modest 2.7% over the same period. The rand, being a high-beta emerging market currency (and an oil-importing country), is the 3rd-worst performing emerging market currency this month, reaching R16.95/USD on Friday, the weakest level this year. In contrast, the US dollar has gained 3.2% against the euro month-to-date.
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• The sharp rise in oil prices has prompted several governments to introduce measures designed to cushion the impact on domestic economies. In Brazil, policymakers moved to reduce fuel taxes for consumers while also raising taxes on crude exports, suggesting an effort to both limit the domestic inflationary pass-through from higher oil prices and capture more revenue from stronger export prices. Elsewhere, governments have signalled greater fiscal support to offset rising energy costs. Indonesia has indicated that it will absorb much of the increase in global oil prices through the state budget, expanding fuel subsidies and compensation to state energy companies to help keep domestic fuel prices stable. South Korea has likewise signalled that it may use stronger-than-expected tax revenue to extend support measures aimed at softening the impact of higher oil prices on households and businesses. The International Energy Agency coordinated an emergency release of approximately 400 million barrels of reserves in an effort to stabilise energy markets, although the impact is limited by the pace at which the reserves can be released, which is well below the loss of supply through the Strait of Hormuz.
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• According to the US Bureau of Economic Analysis (BEA), core PCE inflation increased by a significant 0.4% m/m in January, pushing the annual rate of core PCE inflation up from 3.0% to 3.1%, its highest level since early 2024 and significantly higher than the CPI equivalent. The annual rate of increase in January was, however, in line with market expectations. The US Federal Reserve (Fed) meets next week to decide on monetary policy and is now expected to keep interest rates unchanged. The oil price (Brent) is up around 66% year-to-date and remains highly volatile as investors try to understand the scale and duration of disruptions to energy supplies. Against this backdrop, markets have been pricing out expectations for Fed easing. Current pricing suggests that the Fed will cut interest just once more this year, down from expectations at the end of February of two or more cuts. Equally, the Fed seems unlikely to provide strong guidance around the short-term outlook for interest rates (historically, central banks have tended to look through temporary spikes in oil prices), given the heightened uncertainty in the Middle East. However, market participants will likely focus on how the Fed evaluates the risks to inflation, and how it might balance those risks against the impact of higher energy costs on economic growth. The Fed started its current interest rate-cutting cycle back in September 2024 and has cut rates on six occasions and by a total of 175bps since then.
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• US consumer inflation rose by 0.3%m/m in February, in line with market expectations. This kept the annual rate of inflation unchanged at 2.4% y/y. As recently as October 2025, US headline inflation was up at 3.0% y/y. Core consumer inflation increased by a slightly more modest 0.2%m/m in February, which was also in line with expectations, resulting in the annual core inflation rate remaining unchanged at 2.5% y/y. While core inflation has slowed from 3.3% at the start of 2025, it is, obviously, not yet in sight of the Fed’s inflation target and is likely to remain elevated over the coming months – partly because of the additional fiscal stimulus at the household level over the coming months and partly due to the secondary impact of the higher oil price. Importantly, US headline inflation is expected to accelerate again in the short term due to higher oil prices. The average US gasoline price is up 18% since the end of February 2026 and has a very uncertain outlook, given its heavy dependence on the duration of the Iran conflict and on the flow of oil tankers through the Strait of Hormuz.‍
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• The second estimate of US Q4 2025 GDP growth was revised lower to 0.7% q/q (annualised), down from an initial estimate of 1.4%. The downward revision was mainly due to a greater-than-expected softening in consumer spending, investment activity, government spending, and exports. While the headline growth rate of 0.7% q/q is concerningly weak, the subdued performance was largely due to the government shutdown in October 2025.‍
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• The US home affordability index improved for the eighth consecutive month in February 2026, reaching its highest level since March 2022. The index has benefitted from a slight moderation in mortgage interest rates and more subdued increases in house prices. However, according to National Association of Realtors chief economist Lawrence Yun, “there is along way to go to return to pre-pandemic levels of transaction activity”.‍
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• In the final quarter of 2025, SA GDP grew by 0.4% q/q, (seasonally adjusted, but non-annualised). This compares with a revised increase of 0.3% in Q3 2025, 0.8% in Q2 2025, and only 0.1% in Q1 2025. Over the past year the economy expanded by a very modest 0.8%, hurt by a downward revision to the prior quarter and the fact that all of South Africa’s industrial sectors contracted in the quarter including mining (hurt by declines in coal and PGM production), manufacturing (eight out the 10 manufacturing divisions reported a decline), construction (which has now experienced nine consecutive years of recession), and electricity and transport (especially land transport). During 2025, the SA economy grew by a disappointing 1.1%, and while this is up from growth of 0.5% in 2024 and 0.8% in 2023, it remains well below the level required to improve SA’s standard of living. Over the past 10 years, SA has achieved an average annual GDP growth rate of only 0.7%.‍
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• During January 2026, SA manufacturing production increased by an encouraging 1.5% m/m, signalling a good start to the year, although over the past year, production declined by a disappointing 0.7%. Despite the increase in January, SA manufacturing activity is still struggling to gain momentum. This is partly reflected in the fact that manufacturing activity is still 3% below the level achieved two years ago and 5.6% below the level of output recorded prior to the start of COVID-19 in 2020, and also because the sector has been unable to achieve a consistent increase in output each month. Instead, one or two months of positive growth tend to be followed by a couple of months of negative performance, resulting in stagnant to weak performance overall.‍
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• South Africa’s mining production started the year strong, with production rising by 2.9% m/m in January, after a disappointing and revised decline of 1.6% m/m in December. On a yearly basis, mining production rose by an impressive 4.6% y/y, higher than December’s estimate of 2.8% y/y and higher than market expectations of 2.7% y/y (Bloomberg). Overall, despite the recent improvement, mining production remains 9.9% below the output level that prevailed in January 2020, prior to the COVID-19 outbreak.‍
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• The daily under-recovery on the SA petrol price is R6.43/l (95 octane in Gauteng on 12 March), while the average under-recovery month-to-date is R3.97/l. The daily diesel price under-recovery was R10.86/l (0.005% in Gauteng on 12 March), while the average under-recovery is R6.74/l. (On Friday, we shared a note on what this could mean for SA’s rate inflation in April, as well as the likely response from the SA Reserve Bank.‍
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• China’s exports surged by a very impressive 21.8% in the first two months of the year compared with the same period a year earlier. The increase was well above analysts’ estimates of 7.2% as strong global demand for technology products and electronics, partly linked to the artificial intelligence (AI) boom, helped lift shipments (China reports combined data for the first two months of the year to smooth Lunar New Year distortions). Although exports to the US declined during the two months, this was more than offset by increased trade to the European Union and Southeast Asia. Imports increased 19.8%, pushing China’s trade surplus to a record US$213.6 billion.‍
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• In February 2026, China’s headline consumer prices accelerated to their highest rate in three years, as household spending surged during the longer- and later-than-usual Lunar New Year holiday. Consumer inflation came in at 1.3% y/y, much higher than the 0.2% y/y growth in January 2026, and well above market expectations for Chinese inflation to pick up to 0.9% y/y (Bloomberg). Core inflation, which excludes food and energy inflation, surged to 1.8% y/y in February 2026, driven almost entirely by holiday-related services. However, beyond the holiday boost, there are limited signs of outright reflation as the Chinese economy continues to struggle with weak domestic demand.‍
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• European Central Bank (ECB) president Christine Lagarde emphasised that the institution will take the necessary steps to keep inflation under control amid rising energy prices. Lagarde also noted that Europe is better positioned to absorb the current shock than in prior years, but she acknowledged that uncertainty and volatility remain elevated.‍
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• German factory orders declined by a substantial 11.1% m/min January. This was a significantly larger decline than market estimates of around 4%. Domestic demand was particularly weak, down 16.2% m/m, while foreign orders fell 7.1% m/m. Back in March 2025, the German government announced a very substantial fiscal stimulus package focused largely on increased infrastructure and military spending. However, at the time, it was well understood by most economic analysts that these types of fiscal support measures (especially infrastructure development) take a long time to be implemented effectively.‍
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• Japan’s initial estimate of GDP growth in Q4 2025 was revised up from a mere 0.2% q/q (annualised) to 1.3%. The upward revision was mainly driven by higher business investment (increased from 0.2% q/q to 1.2% q/q) and consumer spending (increased from 0.1% to 0.3%).