Motorists will have to face hard times quite soon
SOUTH African consumers should brace themselves for a noticeable increase in expenses in the festive season ahead as the price for fuel is likely to increase sharply during the beginning of December, with diesel up 17 percent year-on-year and petrol up 14 percent year-on-year.
According to the Central Energy Fund’s latest estimates, the price for petrol is currently under-recovered by 66 cents per litre and that of diesel by 57c per litre. Under-recovery implies that prices are about to increase by at least that margin next month.
For diesel it will lead to a pump price in Gauteng of R12.92 per litre. This is 190c per litre higher than last year’s December pump price of R11.02, or an increase of 17.2 percent.
The pump price for petrol in Gauteng will increase to R14.71 per litre or an increase of 14.4 percent on the pump price at the beginning of December 2016.
The reasons for this ongoing increase in fuel prices are the steady but surely increase in the Brent oil price, as well as the depreciation in the rand exchange rate against the dollar.
The price for Brent had increased from $56 (R794) per barrel at the beginning of October to the current level of higher than $63 per barrel.
This has contributed towards 41c under-recovery in the landed international price for petrol of 41c and for diesel of 33c.
During the same time the rand had depreciated from an average level of R13.70 to the dollar on October 26, the date up to which the fuel prices were adjusted during the beginning of November, to an average level higher than R14.10 to the dollar up to November 8.
Under-recovered
This depreciation in the rand exchange rate had already caused both the prices for petrol and diesel to be under- recovered by 24c per litre.
If the price for Brent oil remains at its current level and the rand to dollar exchange rate also remains around the R14.23 to the dollar mark, the under-recovering may even increase more by the end of November.
The contribution of the fuel price in the inflation basket currently is almost 5 percent.
The increase in the petrol price of 66c per litre and for diesel by 49c per litre at the beginning of September had a big effect on the increase in the inflation rate from 4.8 percent in August to 5.1 percent in September.
Fuel prices recorded a 12.2 percent annualised increase and the transport sub-index, where the fuel price has a substantial weight in, had increased its contribution to the total inflation rate of 5.1 percent to 0.8 percent, up from the 0.6 percent in August.
Only the food index now has a greater contribution of 0.9 percent of the total 5.1 percent increase in the CPI.
It is expected that the continuous increases in the fuel price will also play a major role in the decision of the Monetary Policy Commission not to lower interest rates in months to come. Chris Harmse is the chief economist at Rebalance Fund Managers.