Petrol and diesel price warning for South Africa
Economists have warned that inflation in South Africa could start moving upward again in the coming months, thanks to petrol and diesel price hikes that hit in August and September – with another gut punch for motorists coming in October.
According to the Bureau for Economic Research (BER), inflation data coming out this week (20 September) is likely to reflect the economic pressures that have hit South Africa in the third quarter so far.
While the group does not expect inflation to tick upwards just yet – expecting a flat rate at 4.7% in August – this is a significant slowing down of the disinflation trend seen over the last few months.
The main culprit, the BER said, is the transport segment, which is heavily influenced by local fuel prices.
“The major driver of a projected 0.3% m-o-m increase for headline CPI will be the transport component. The petrol price rose by 37c/litre in early August, with diesel up by around 70c/litre.
“We expect only a modest monthly rise in food prices, which should drag the annual rate down towards 8%. In all, headline CPI is forecast to stabilise at 4.7% y-o-y. We expect a similar annual rate for core CPI, which excludes volatile food, petrol and energy costs.”
Economists at Nedbank are slightly less bullish, expecting inflation to tick up to 4.9% because of the rising fuel prices – particularly the rising global oil price.
Investec chief economist Annabel Bishop previously noted that the inflationary pressures are likely to push inflation above 5.0% for the remainder of the year.
More positively, however, this is unlikely to push the South African Reserve Bank into hiking interest rates – but households should expect more pressure.
October pain coming
According to the BER, the Brent crude oil price reached its highest level since last November – leading to massive under-recoveries in local fuel purchases.
“During the week, the IEA and OPEC reported that a supply shortfall is expected for the rest of the year. The extension of supply curbs by Russia and Saudi Arabia, coupled with a better demand outlook, has bolstered prices,” it said.
The current surge in oil prices will show up in headline inflation numbers in the coming months, the BER said.
“Indeed, while it can still change during the course of the month, the under-recovery for various grades of petrol in September so far is at around R1/litre and almost R1.60/litre for diesel,” it said.
The latest data from the Central Energy Fund (CEF) indicates that even this estimate might be conservative.
The CEF’s daily snapshot of over and under-recoveries is pointing to petrol price hikes of around R1.20 per litre lined up for October, with diesel again looking to breach R2.00 per litre in terms of price hikes.
While global oil is the main driver behind the expected increases, the weaker rand is also driving under-recoveries.
According to Nedbank, the rand has been trading within a narrow range between R18.80─R19.00/$ for most of the last week but has started the new week above these levels.
The local unit is under pressure from load shedding – despite the de-escalation over the weekend – and a firmer dollar.
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