More pain for motorists as ′catastrophic′ fuel increases await
South Africans have been hard hit by five consecutive months’ fuel price hikes
With the surge in fuel prices already having caused producer prices to accelerate at the fastest pace since 2016, preliminary Central Energy Fund (CEF) figures signal more pain ahead for motorists, and a potential interest rate increase.
Factory and farm gate inflation, as measured by the annual change in the producer price index, reached an annual 6.3% in August, from 6.1% the month before, data from Stats SA showed. It was the fastest pace increase since December 2016.
This comes as South Africans have been hard hit by five consecutive months’ fuel price hikes after Brent crude rose about 20% in 2018, with local prices being pushed up further by a 14% depreciation in the rand against the dollar.
"Producer inflation is forecast to remain elevated over the medium term due to higher fuel prices as well as [a] depreciation in the value of the rand," Nedbank economist Busisiwe Radebe said.
While the government intervened by limiting increases in September, the first such move since the 2000s, early indications are that drivers may face a record increase in October.
Commenting on unaudited month-end fuel price data released by the CEF on Thursday, the Automobile Association (AA) said the price hikes would be "catastrophic" for road users.
Petrol is expected to increase R1.01 a litre, with diesel set to spike by R1.24 a litre in October. That could extract R2.5bn more a month in transport costs from the economy, the AA estimates.
"They are the biggest [price increases] in SA history — and the major culprit is SA’s chaotic economic policy, which has left us defenceless against upticks in international oil prices," AA spokesman Layton Beard said.
The CEF is expected to announce the fuel price adjustment for October on Friday, to come into effect on October 3.
Petroleum prices climbed 25% from a year earlier, while diesel surged 28%.
Reserve Bank governor Lesetja Kganyago has listed international oil prices and the rand’s volatility among the most important risks to the inflation outlook. The bank has a target to keep consumer inflation at a 3%-6% range, and has forecast that it will peak at 5.9% in 2019.
NKC economist Elize Kruger warns that this could spur a 25 basis point interest rate hike in the next six months, "should the rand exchange rate remain at weaker levels and if there is evidence of second-round effects".