Government has run out of road on petrol price hikes – and April could get worse: economist

 ·2 Mar 2022

Government can no longer rely on the slate levy and other mechanisms to soften the blow of fuel price hikes in South Africa, with more of the increased costs being passed onto consumers, says Investec chief economist Annabel Bishop.

South Africa’s ‘slate levy’ is effectively a self-adjusting mechanism that government uses to deal with daily differences in petrol prices.

Bishop noted that the government used the slate levy to administer a smaller petrol price hike of 53c/litre in February, even though the rand/oil price rose by 11.6% on average over January – which should have resulted in a hike of around R2/litre instead.

“While the slate levy is used to absorb sudden fuel price changes, and this particularly occurred in February when the under-recovery was running close to R2.00/litre at times, it has been heavily depleted and the slate levy cannot absorb much of the March increase,” she said.

“A R1.85/litre under-recovery was recorded by the end of February in South Africa’s petrol price, compared to the actual R1.46/litre hike on Wednesday, so a small amount is still being absorbed, but far more is being passed through than last month, and April could see a worsening of this.”

Bishop said that global oil prices and further rand weakness are likely to be heavily dependent on the level of aggression seen in Ukraine by Russia. With the war remaining only between these two countries, there is little current likelihood perceived of a third world war, she said.

However, she noted that global markets will see a significant adverse reaction to an intensification of a Russian attack, which is quite possible this month.

“Foreign companies are leaving Russia, after investing there for several decades. Markets rely on various sources for updates on the progress of the war, with reports today of satellite images showing a 67km convoy of Russian military vehicles heading to Ukraine.

“Indeed, the next few days already are expected to see an intensification of Russia’s attack on Ukraine, with the majority of Russia’s troops and heavy artillery not yet engaged, and Russian attacks risking evolving to an ultimate scorched earth policy. Such a harsh doubling down (or worse) is currently not anticipated by markets and would drive oil prices even higher.”

Read: Alternative petrol price model proposed for South Africa

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