The government will need to intervene in the coming weeks to soften the impact of a record-high petrol price increase in South Africa, say economists.
Speaking to the Sunday Times, Agri SA economist chief economist Kulani Siweya called on the government to suspend fuel levies to relieve pressure on food prices.
“With global wheat prices and agricultural input costs skyrocketing, the government must take urgent action and suspend the fuel levies to provide relief for farmers, especially the nation’s small-scale farmers, and contain food prices.
“Failure to act can only worsen the pricing pressure on consumers, compromising food security, especially for the most vulnerable in society,” he said.
This was echoed by Investec chief economist Annabel who said that state intervention will likely be needed to soften the blow of record-high petrol prices next month.
A R2.44/litre petrol price hike is building for April, with the price of diesel expected to increase by R3.35/litre, she said in a research note this week.
Russia’s ongoing invasion of Ukraine has led to significant volatility in the market, making it difficult to gauge exactly how much South Africa’s petrol price will increase at month-end, the Bureau for Economic Research (BER) said in a research note on Monday (14 March).
“Early in the week, oil prices surged even higher towards $140/bbl after reports emerged that the US and European allies were discussing a ban on oil imports from Russia. In the end, while the US announced an immediate ban, the UK said it would phase out Russian oil imports by the end of this year.”
On Wednesday, the oil price subsequently declined sharply by more than 10% after the United Arab Emirates (UAE) said it would encourage fellow OPEC members to raise oil output.
The petrol price blow could also be softened by a stronger rand.
“The local currency continues to be supported by the view that the sharp war-induced rise in some of South Africa’s key export commodities, including coal, palladium and gold, will shield the current account against the impact of the higher oil price.
“In fact, given the magnitude of the relative commodity price increases and the weights of these commodities in South Africa’s import and export basket, the current account may even benefit.”
This is different to other emerging markets like Turkey and India who, like South Africa, are net oil importers and will see their import bills skyrocket, but do not receive a benefit from
higher export commodity prices, it said.
“From this perspective, the rand could remain well supported in the near term.”