Hope for a further drop in inflation as oil falls to lowest level since July
There is a glimmer of hope for a reduction in the prices of basic consumer goods as inflation is also anticipated to fall further following the slump in oil prices to their lowest levels since early July on Thursday.
Crude oil is a major economic input, so a rise in oil prices contributes to inflation, which measures the overall rate of price increases across the economy.
In addition to that direct effect on inflation, higher oil prices raise inflation indirectly because crude oil is a key ingredient in petrochemicals used to make plastic. So, more expensive oil will tend to increase the prices of many products made with plastic.
Similarly, consumer prices factor in transportation costs, including fuel prices, and the cost of oil accounts for roughly half of the retail price of gasoline.
The country’s inflation has been on a downward spiral since April 2023, dropping by over 3.1 per cent average – from 6.1 per cent in April to 3.0 per cent in September. This remarkable fall has also prompted the Central Bank of Eswatini (CBE) to ease the Kingdom’s monetary policy stance by cutting the interest rate by 25 basis points (0.25 per cent) in July and also left it unchanged in September.
Brent Crude, the international oil benchmark, fell 4.6 per cent on Thursdayone of the biggest daily declines this year, to settle at E1,400 (US$77.42) a barrel, below theE1,471 (US$80) level at which the government started to strain for Saudi Arabia and Russia. The US benchmark West Texas Intermediate fell 5.5 per cent to E,1324 (US$72.48) a barrel.
The drop in prices builds pressure on Saudi Arabia, Russia and other members of OPEC+ ahead of their meeting on November 26, when they will consider how to respond to weakening oil prices and concerns that a potential stumble in global growth could hold back demand.
There may be some testing ahead of the OPEC+ meeting. In the past they have on regular occasions announced cuts or extended cuts with prices in the $82-$85 range,” said Daan Struyven, head of oil research at Goldman Sachs. “Our current expectations are that the Saudi cut gets extended fully to the first half of next year, with no expectations of group cuts.”
Oil Prices have been under pressure for much of 2023, but they began to rise in the summer after Saudi Arabia and Russia led the OPEC+ group by making additional cuts to output and exports. Saudi Arabia made its first of several further voluntary cuts to production in July and has said it would continue with the measures until at least the end of the year.
On Tuesday, the International Energy Agency said the oil market should return to surplus in early 2024, even if Saudi Arabia extends its production cuts this year.
Undeniably, the falling oil prices are exerting pressure on the OPEC+ group of major oil producers to consider extending and deepening production cuts when they meet in 10 days in Viena.