Fuel prices, SARB watching second-round effects

African government’s responses to rising fuel prices are falling into two camps: those passing higher costs directly to consumers and those absorbing them. Kenya and Ethiopia are doing the latter but, the longer the war drags on, the more likely that they will be forced into sharp fuel price hikes that could be exacerbated by large currency devaluations. Meanwhile, at its policy meeting this week, the South African Reserve Bank said that it will look through the initial energy price spike but warned that the emergence of second-round inflation effects could bring rate hikes onto the table. Assessing forward looking measures like inflation expectations, surveys and PMIs will be critical to ensuring, if rate hike are needed, that they don't arrive too late.