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Pietermaritzburg - The biggest thing affecting global markets at present is the low world oil price.
Our first reaction here in South Africa is one of jubilation. Yes, the petrol price will finally start moving in the opposite direction to what often seems has been a one-way street.
The price for 95 unleaded petrol has fallen nicely and another cut, possibly as much as a rand per litre, is likely in the first week of February.
The crude oil price in New York recently fell below $45 per barrel after seven months of decline, a level that has not been reached since 2009.
It is also the only time that the oil price has fallen so fast in such a short period since the last recession. The price has fallen about 59% since June 2014.
The decline means that in February, you could save over R200 when filling the petrol tank of a small car when compared with the price last August. According to Old Mutual, it amounts to more than R1bn per month in savings for South African households.
Retail sales data for November 2014 released last week already shows a slowly improving trend in spending.
That’s not bad!
However, retailers who buy their produce and goods from food producers and other manufacturers, say that the lower fuel price has not yet translated into lower prices.
In fact, many retailers say they have already received notifications of fairly normal early year price increases ranging from six percent to 15%.
Taxi operators have gone on television saying they do not intend to lower their fares, in spite of lower fuel costs, because they have allegedly been struggling to cope with the higher prices for a long period.
That is not such good news.
Nevertheless, if the oil price remains low for a long time, there is every chance it will impact on the cost of transporting goods in this country, most of which is still by road, and thus it will reduce the inflation rate.
Some economists already predict that inflation, currently at 5.3%, will fall to below four percent in the coming months.
This, to me, has also changed the outlook for interest rates, which, towards the end of last year, still seemed as if they were on the up because of the growing trade and budget deficits and low growth rate of the economy.
With inflation going down, the Reserve Bank will likely leave interest rates where they are.
READ: Interest rates likely unchanged - expert
Lower interest rates are possible but unlikely — the Reserve Bank will want to retain one of the key factors that still attracts international investment funds to this country from developed economies; the relatively higher interest rates.
A number of reasons have been put forward for the falling oil price, the predominant being a glut in supply and lower demand.
Supply has been boosted by the United States’s shale production and other major oil producers deciding not to cut production. Demand has fallen due to the weak global economy.
I am inclined to follow my own experience on this — Tony Twine, a Johannesburg economist, used to remind me often that oil-price movements are a function of global growth.
READ: Interest rate cut could be looming
The prices of South Africa’s major export commodities have also fallen sharply in recent months.
For example, the dollar price of a tonne of iron ore has fallen 50% over the year from December 2013 to a month ago. It supports the fact that markets are expecting much lower demand for commodities, indicative of lower global growth.
If this is the case, as in 2009, South Africa will not escape the impact.
An even lower global growth environment will have a profoundly negative impact on our economy which is already struggling to grow.
Exports will drop, negating the positive windfall to the current-account deficit of a weaker currency.
The lower inflationary environment will be short-lived as the weaker currency continues to eat into the dollar-denominated prices of our basic foodstuffs.
And many economists now believe the low oil price is simply not financially sustainable for oil producers over a long period, and they predict the price moving up again soon, to the $60 to $70 a barrel bracket at least.
And to top it all, the Finance Minister will probably use the low oil price as one reason to foist some R15 billion of additional taxes on us on next month’s budget day.
That is all bad news for us.
So save your money from the low petrol price if you can.
You may need it.
* Edward West is the business editor at The Witness.
