Elevated commodity prices have played a crucial role in mitigating structural challenges within the South African economy. From mid-2020 to late 2022, key export commodities such as rhodium, palladium, thermal coal, and iron ore experienced significant price increases. These surges helped maintain the South African Reserve Bank (SARB) Index of Commodity Prices (ICP) at high levels.
The SARB ICP is an essential tool for monitoring how changes in commodity prices impact the economy. It serves as a basis for various economic discussions, including terms of trade, balance of payments, and tax revenue. The previous calculation method relied heavily on SARS export values for weighting commodity components. However, this approach would have led to inflated index levels due to price spikes in rhodium and palladium if not revised.
To address this issue and ensure more accurate reflections of global price movements, the SARB has updated its ICP methodology. The calculation now employs a Laspeyres methodology with index weights based on 2019 data—a year deemed relatively normal—to avoid skewing results from using export values alone.
Additionally, the composition of the ICP has been revised. It now includes 21 commodities with corresponding weights while excluding vanadium, titanium, ferromanganese, and coking coal due to weight or data considerations. New additions to the index are iridium and ruthenium.
These updates aim to provide a more balanced representation of South Africa's commodity exports by considering both data availability and overall contributions to exports.