Trouble coming for petrol prices in South Africa

 ·16 Feb 2024

Economists from the Bureau for Economic Research (BER) say the volatile global oil price and the weaker rand against the dollar will likely push fuel prices higher in March – which is bad news for inflation.

In the group’s weekly review, it noted that the oil price remains volatile as tension in the Middle East continues to build, with no end is sight for the ongoing conflict in the region.

“Israeli Prime Minister Benjamin Netanyahu once again said that a permanent ceasefire is not on the table and that the country would push for a total victory over Hamas.

“At the same time, there are increased worries about the clash between Hizbollah (Lebanon) and Israel turning into a full-blown war after Israel carried out numerous airstrikes in South Lebanon (in retaliation for a suspected Hizbollah attack on Israel),” it said.

While steady US oil production has so far prevented the oil price from blowing out despite increased geopolitical unrest in the Middle East, crude is still trading higher than at the start of the year.

“Indeed, with a so far higher Brent crude oil price and a weaker rand exchange rate in February (relative to January), fuel prices could rise once more next month, keeping pressure on inflation,” the BER said.

This echoes analysis from Investec chief economist, Annabel Bishop, who noted earlier this week that both the rand and global oil prices are on shaky ground.

While the rand is trading weaker because of a mix of local and global issues – local being tensions and anxieties ahead of the 2024 elections, and global being the sentiment around higher interest rates sticking around for longer – oil prices are also tied up in a confluence of macroeconomic matters.

The aforementioned tensions in the Middle East are a big factor – but so is the sentiment around US interest rates, overall demand from China, and moves by OPEC+ nations.

BusinessTech’s mid-month petrol price analysis shows that both petrol and diesel are looking at a sharp hike in March, with the former showing an under-recovery (thus eventual increase) of around R1.30 per litre and the latter lining up a hike of between R1.40 and R1.50 per litre.

According to the BER, a petrol and diesel price hike will have a negative impact on inflation, which the South African Reserve Bank is hoping to see settle “sustainably” at the mid-point of its target range (4.5%).

Reserve Bank governor Lesetja Kganyago has made it clear that the central bank won’t adjust its policy (i.e., cut rates) until it is comfortable that inflation is under control at this point.

This has fed into a “higher for longer” position on rates, with the first cuts only expected in July or September 2024 in South Africa.

This means indebted households are likely to remain under financial pressure for the bulk of the year, with relief sitting just out of reach for now.

Stats SA will publish the latest inflation figures (for January 2024) next week.

The BER anticipates that inflation will accelerate to about 5.4% y-o-y from 5.1% in December. This is despite fuel prices coming down that month.

“While inflation is set to moderate through 2024, the first few months will be bumpy amid high fuel prices and increased medical aid premiums,” the BER said.

Read: Interest rate pain won’t go away in South Africa

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