The links are through trade, and markets have priced in potential disruptions in supply due to the conflict and the sanctions against Russia. 

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It was specifically metal prices that soared. When there is conflict, the price of gold increases, as a safe haven asset. Russia is also a major producer of platinum, palladium and rhodium and these prices increased. On the JSE, platinum and gold stock also surged, shielding the South African market from some of the turmoil elsewhere.

The conflict also influences the prices of agricultural commodities. Both the Ukraine and Russia are major exporters of wheat, maize, and sunflower oil. Together they account for a quarter of global wheat exports. Ukraine’s sunflower oil exports make up 40% of global exports and Russia accounts for 18% of global sunflower oil exports. Any disruption of trade will add to already high agricultural commodity prices.

The conflict may also influence South African exporters. Russia accounts for 7% of our citrus exports in value terms, and 12% of apples and pears exports.

Added to this, the oil price also increased, and Brent crude now trades above $100 per barrel. The price has increased more than 31% in 2022 and by 60% over the past 12 months.

Together it makes for a differential impact on the South African economy. Companies and exporters will benefit from high commodity prices, but higher prices for food and fuel will add to inflationary pressure.

SA Inflation

Looking at the domestic picture, there was some good and bad news last week and the pressure on prices will be some balance of these.

On the one hand, producer price inflation in January moderated to 10.1%. Month-on-month, the PPI increased by 0.2%, which is the slowest rate of increase in a year.

Also, NERSA only allowed a 9.61% tariff increase for Eskom, after the utility requested a 20.5% increase.

Stay tuned to OFM Business Hour for further developments in this regard.

OFM Business Hour