Fuel hike to hit hard
Fuel levies, high oil price, weak rand combination spark concern
NEXT month’s massive fuel price hike, influenced by a range of factors, is expected to have a knock-on effect which will leave consumers with less money to save or spend, say experts.
On April 1, the price of 95 octane petrol will probably rise by about R1.55 a litre while the price of 93 octane will rise by around R1.50. The price of diesel could rise by about R1.15 a litre.
Paul Joubert, senior economic researcher at the Solidarity Research Institute (SRI), said the price of petrol would increase next month by the highest nominal amount in history for the second consecutive month.
“This will happen if the past few days’ somewhat lower rand oil price is sustained until next Thursday. Should this trend reverse, the increase will be steeper.”
He said a part of these increases stemmed from the 80.5c government fuel levies announced by the Minister of Finance in his Budget speech last month, while the remainder was because of higher oil prices this month, as well as the weakening of the rand against the dollar.
Joubert said it was still too early to precisely predict what would happen to local fuel prices.
“Even if, during the rest of March, oil prices fall to the extremely low levels of around $46 (about R552) a barrel, which were seen in mid-January, the petrol price will still rise by about R1.40 per litre.”
He said the Department of Energy would make the final announcement next Friday.
FNB economist Alex Smith said petrol prices would probably rise by about R1.60 next month as a result of a combination of higher fuel taxes and a weak rand. Despite this, petrol prices next month would still be slightly lower than the average for last year, and petrol inflation in April would be around 9 percent year-on-year.
Smith said the average rand/dollar exchange rate would be slightly stronger than the spot level, while oil prices are expected to average slightly more than the current spot level.
“Significant volatility in the rand and oil prices is expected, so we could easily see further significant upward or downward petrol price adjustments over the coming months.”
Clif Johnston, vice-chairman of the South African National Consumer Union (Sancu), said major swings in the fuel price were “most unfortunate” for consumers.
“Apart from the direct impact on motorists, the expected large increase on top of last month’s 96c/litre increase will have a more insidious effect on everyone, as a result of the way in which consumer prices respond to such changes. When input costs (such as the fuel price) rise, the prices of most goods and services rise almost immediate- ly as suppliers ward off possible losses.”
But when input costs fell, consumer prices tended to stick or fall slowly, and this “rachet-like” effect meant that prices of goods and services would rise again even though they hadn’t fallen much after the earlier fuel price reductions.
“This results in higher prices to consumers than if fuel price swings had been smoothed out. So sadly the recent fuel price bonanza was short-lived, and once again consumers across the board will need to tighten their belts.”
Consumer activist and adviser Ina Wilken said the continual increases in the fuel price made it impossible for consumers to budget or save money.
She added that the government’s fuel policy was not making it any easier for the consumer.