Petrol price gut punch for South Africa

 ·19 Mar 2024

Stats SA will publish the consumer price inflation (CPI) print for February on Wednesday, 20 March, with economists anticipating an increase thanks to higher petrol prices.

Investec economist Lara Hodes said that CPI is projected to increase by 0.8% m/m in February.

The official CPI print is thus expected to increase from 5.3% in January to 5.4% in February. Other economists, such as those at the Bureau for Economic Research (BER) and Nedbank have differing views.

Nebank is more optimistic on the numbers and anticipates a flat print of 5.3%. The BER, meanwhile, expects inflation to spike up to as much as 5.7%.

Analysis from all three groups points to petrol prices as one of the biggest culprits, however.

“During the month, consumer prices are expected to have increased by 0.7% from 0.1%, mainly lifted by fuel prices,” Nedbank said.

“The petrol price increased by 3.3% in February after three consecutive months of declines, with the rise reflecting a combination of an increase in the price of Brent crude oil (up 1.9% m/m) and a depreciation in the rand/dollar exchange rate (down by 2.8%). This pushed the yoy growth in the petrol price to around 5.5% from 3.3%.”

The BER said that medical aid contributions being tracked in February account for its main deviation from other expectations, but higher food inflation – driven by higher transport costs as a result of the fuel hikes – is also in play.

Hodes noted that February recorded a petrol price increase of 75c/litre, adding upward pressure to the inflation outcome, and alluded to the worse to come in March, thanks to an even bigger hike experienced this month.

“A further, larger increase of R1.21/litre was implemented in March, underpinned largely by an increase in the global oil price, which will weigh on the month’s headline number,” Hodes said.

The expected increase in inflation means that South African households will remain under pressure with higher prices hitting income, while high debt levels not finding any relief from interest rate cuts any time soon.

As things currently stand, petrol prices are lining up for another hike in April 2024, with the latest data from the Central Energy Fund pointing to an increase of around 10 cents per litre.

Diesel is building for a welcome cut or around 35 cents per litre, which should take the edge off some transport and logistics costs, particularly for freight.

However, markets are currently volatile – including global oil markets – and there is still time before the end of the month for the situation to change.

The rand is currently trading weaker against the US dollar, again threatening to breach the psychological R19/$ level. The oil price, meanwhile, has broken out of its narrow trading range and is heading higher – to around 86$ a barrel.

Both these indicators point to continued pressure on fuel recoveries.

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