How government can stop a R2/litre petrol price hike in South Africa next month

Global markets are beginning to consider Russia’s invasion of Ukraine as a long-term issue, and a lengthy invasion will have severe effects on the global supply chain, and so commodity prices, says Investec chief economist Annabel Bishop.

One of the key concerns is the local fuel price, with global oil prices expected to continue climbing in the coming weeks.

“Sanctions are deepening, with global discussions now on banning/limiting imports of Russian fuels, and the Brent crude oil price spiking to US$128.7/barrel and at risk of reaching US$150/barrel. Strategic oil reserves have been released into the markets already to attempt to quell the price pressure,” Bishop said.

Daily petrol price data from the Central Energy Fund (CEF) shows South Africa is currently on track for a petrol price hike of between R1.99 and R2.04 at the end of March, although this could be even higher if global oil prices continue to climb.

Bishop said that South Africa could cushion or absorb this hike entirely if the government temporarily suspends fuel levies, which make up a significant portion of the basic fuel price.

“A high proportion of South Africa’s fuel prices are government levies, and temporarily removing these would reduce a sudden extreme fuel price jump, while state support (is introduced) to combat the effects of food spikes such as bread prices on rapid wheat price escalations would also be necessary.”

The National Treasury opted not to increase fuel levies in its February 2022 budget for the first time in nearly 30 years. The General Fuel Levy is currently pegged at R3.93 per litre and the RAF levy at R2.18 per litre. Combined they add R6.11 to every litre of petrol and diesel sold in the country.

Bishop said the local currency is expected to be less impacted by the war as it has been supported by commodity prices and the markets have viewed the Russian/Ukraine conflict as more of a supply disruption than a severe threat to global growth.

As South Africa heads towards the middle of March, and then on to completing Q1 2022, the rand so far averages R15.35/dollar.

“Currently the rand is at R15.37/dollar, and we still expect R15.40/dollar as the quarter average, although the domestic currency is at risk of weakness in the remainder of this month – for as long as the Russian invasion of Ukraine continues, and worsens,” Bishop said.

Read: Price hike double-blow to hit South Africa

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How government can stop a R2/litre petrol price hike in South Africa next month