Brace yourself for higher fuel prices, say economists
The price of oil and the rand’s strength against the US dollar are the two primary factors influencing the fuel price
South Africans have been hard hit in 2018 by fuel increases that have weighed heavily on inflation.
The slow rise in producer and consumer inflation has quashed hopes for another interest rate cut. Many economists are expecting the Reserve Bank to hike rates next year as headline inflation continues to edge upwards.
The price of oil and the rand’s strength against the US dollar are the two primary factors influencing the fuel price. Reserve Bank governor Lesetja Kganyago highlighted both as risks to the inflation outlook at the July meeting of the monetary policy committee.
The Central Energy Fund is expected to announce the fuel price adjustment for September on Friday, which will come into effect on September 5.
Many economists expect an increase in petrol and diesel prices due to the weaker rand. FNB chief economist Mamello Matikinca predicts prices will rise by about 18c a litre.
The price of petrol has climbed steadily since the beginning of the year, from R14.20 for 93 octane, and from R14.42 for 95 octane.
Economists said motorists should prepare to pay R17.90 by the end of 2018 and up to R20 by the end of 2019.
The fuel price weighs heavily on production costs, causing headline inflation to increase.
The producer price index (PPI) is expected to remain high, underpinned by rises in the cost of transport equipment and administrative price inflation due to raised oil prices in rand terms, a weaker rand and increases in utility prices at municipalities.
July saw the fourth consecutive increase in fuel prices, of 23c/l and 26c/l for petrol and diesel respectively, which will be reflected in the PPI figure released on Thursday.
"This fuel price pressure will abate somewhat in August as the Central Energy Fund kept the petrol price relatively unchanged for the month. However, if the domestic currency continues to weaken, this could trigger upside momentum in the petrol price again for September," said Investec economist Lara Hodes.
Energy minister Jeff Radebe said he is looking into action plans to reduce fuel costs.
The Automobile Association said the four fuel price increases are symptoms of a weak economy. It said deregulation of the petrol price is not necessarily a solution.
Stephan Krygsman, an expert in transport economics in the department of logistics at Stellenbosch University, said the fuel levy has to be debated. "The fuel levy, or tax on each litre of petrol, is an important revenue stream for the government, but this stream could dry up in the near future," he said.
The fuel levy is the fourth-biggest source of income for the government after income tax, company tax and VAT.
The levy remains popular with the government because it is difficult to evade and the administration cost is very low, Krygsman said.
Although there has been an increase in the number of vehicles on the roads, the fuel levy, which contributes 5% to the national tax revenue, could be gone in 10 years, he said.
"In 2000 the fuel levy was at 100% productivity, but since then there’s been roughly a 1.1% decrease in annual productivity. By 2040, greater fuel efficiency will reduce the fuel tax by almost 48% per vehicle."