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International crude prices have fallen back close to their pre-Iran war levels, with Brent crude now trading around $73 per barrel, a decline of 36% from the peak reached during the conflict of $114 per barrel. The move reflects easing supply fears as markets price in the reopening of key Middle East shipping routes, including the Strait of Hormuz, alongside expectations of a gradual return of Iranian exports to global markets.

This outcome is in line with the call made by The Common Sense, which forecast that once conflict risks eased, oil would likely settle into a range of $65 to $73 per barrel. This newspaper was one of the few organisations that made this call, when most around us were losing their heads and making all kinds of apocalyptic predictions about how high the oil price could get.

Based on what is happening with oil now, South Africa’s petrol prices are expected to ease into the low R20 per litre range towards the end of the year, providing meaningful relief to both households and businesses.

While lower oil prices are clearly positive for the domestic economy, they do not translate into immediate monetary easing. South Africa’s inflation data and the global interest rate environment, particularly in the United States (US), will keep the South African Reserve Bank (SARB) on a cautious path. This is likely to result in a pause in July, with the possibility of a further hike later in the year if global conditions tighten.

In May, South Africa’s consumer inflation rose to 4.5% from 4.0% in April, largely driven by earlier increases in fuel and electricity costs. Inflation data, however, always lag reality because they measure price changes that have already occurred rather than current market conditions.

South African fuel prices are adjusted once a month, on the first Wednesday of the month, based on the previous month's global oil prices and exchange rate movements. Because Brent crude only fell sharply in late June, the full impact of that decline will only feed through at the 1 July fuel price adjustment, and so into the July inflation number. The June inflation number, which will be released just before the 23 July monetary policy meeting of the SARB, will therefore still reflect the earlier higher energy costs and may not yet show meaningful relief.

This creates a timing challenge for the SARB. The forward-looking picture is improving as oil prices fall and reduce underlying inflation pressure, but the most recent data may still show inflation above the central bank’s target of 3.0%, signalling a cautious stance.

At the same time, the US central bank, the Federal Reserve, under new chair Kevin Warsh, has adopted a more hawkish stance, with markets now pricing in the possibility of higher US interest rates later in the year. Expectations of higher US rates have led to the dollar strengthening by 3.0% since mid-June, putting pressure on the rand.

For South Africa, this creates external pressure. Should US rates rise while South Africa keeps rates the same, narrowing the interest rate gap between South Africa and the US, it would place pressure on the rand, raising imported inflation and offsetting the benefit of lower oil prices.

As a result, despite improving domestic inflation dynamics, the combination of lagged data and a tighter global monetary environment means the SARB is likely to hold rates steady in July, while keeping the door open to a possible 25 basis point hike later in the year if external pressures intensify.