Fuel price cut could spur festive spending
CONSUMER discretionary spending will get a boost on Wednesday when the petrol will drop by 69 cents per litre.
Diesel will decrease by 53 cents per litre while illuminating paraffin will drop by 66 cents per litre.
Between October 31 and Thursday, the rand appreciated by more than 2 percent against the dollar, helping to dampen price pressures. The price of crude oil fell 30 percent since June on sluggish global demand and rising production from the US.
The fall in the oil price has been a concern for several members of Opec as most require above $80 (R881) a barrel to balance their government budgets and may need the price to rise above $100 a barrel.
The price of oil slumped after the Opec oil producers decided not to cut output on Thursday. Following the announcement, Brent crude hit its lowest since 2010, falling below $72 a barrel.
Azar Jammine, the chief economist at Econometrix, maintains that the steep decline in international crude oil price superficially generates a perception that further declines in fuel prices will result in a boost to consumption activity and economic growth.
He said on top of the 69c-perlitre reduction in the petrol price next month, there had been further reductions of 5 cents per litre last month and 45 cents per litre this month. What benefit South Africa might derive from the lower oil price appears to have been more than offset by lower prices of commodities’ exports, he added.
While consumers might be benefiting from lower fuel prices, the factors that have contributed to the relief may depress the ability of South African companies to generate export revenue from mineral sales impacting on profitability and improved employment prospects, Jammine said.