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South African rand faces inflation risks as El Niño threatens food prices

Commerzbank says gasoline easing is likely to end in September, while a likely El Niño raises the odds of higher food costs and longer breaches of South Africa’s inflation target.

Reported · Written up by our desk · EM Currencies

Commerzbank flagged risks for the South African inflation outlook that could weigh on the rand, citing August data that surprised to the downside. The firm noted South Africa’s headline CPI was 4.3%, while core inflation was 4.2%.

Commerzbank attributed the August slowdown mainly to lower gasoline and food prices, but warned gasoline will likely stop providing relief, with monthly gasoline prices in South Africa potentially rising again in September if global oil and petroleum prices stay high.

The bank said the bigger concern is food, pointing to meteorologists’ increasing agreement that El Niño is likely to return this year. It cited an estimated 90% probability of El Niño, including a 69% chance it would be the strongest since records began in 1950.

Commerzbank added that past strong El Niño episodes have hit South Africa’s maize harvest, with declines of between 20% and 50% in 2015/16 and 2023/24, contributing to a reported 15% annual price increase for grains in 2016, which it said underscores the risk of prolonged inflation target breaches.

Latest closeGasoline (RBOB) $2.901 ▼7.3%

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