Motorists should brace for fuel price increases as rand slides
Currency strength in July cushions consumers, but rand’s cave-in over the past week does not bode well
The rand’s recent slide does not bode well for motorists, who are already bracing for a petrol price increase this week.
Consumers will pay 11c more for both grades of petrol from Wednesday, while a litre of diesel will cost 13c to 14c less, the Central Energy Fund (CEF) said on Friday.
Fuel carries a weight of nearly 4.6% in the consumer price index and any spike in the petrol price will put upward pressure on inflation. Besides hurting consumers immediately, a higher fuel price feeds through to inflation and its second-round effects will be felt when suppliers and retailers pass higher distribution costs on to shoppers.
Consumer price inflation, which came in at 4.5% in June, is comfortably within the Reserve Bank’s target range of 3-6%. And while the weaker currency makes a fuel price increase more likely next month, it also puts upward pressure on inflation more broadly as the costs of all imported goods rise.
As the average international product prices for petrol and diesel increased over the past month, it was the currency that prevented a steeper hike in the case of petrol and brought some relief in diesel prices.
“The rand appreciated against the US dollar during the period under review, on average, when compared to the previous period,” the CEF said in a statement.
For the period June 28 to August 1, the rand averaged R14.07/$, compared with R14.62 during the previous period, the fund added.
But over the most recent trading days, the rand has lost all of the past month’s gains and more.
Despite an interest rate cut by the US Federal Reserve, which should in theory boost emerging-market currencies, trade tension between the US and China has weighed on them, including the rand. The currency closed at R14.78/$ on Friday, nearly 7% weaker than it was only seven trading days earlier.
Uncertainty over the scale of further taxpayer-sponsored assistance for power utility Eskom and other struggling state-owned enterprises (SOEs) has done nothing to help support the rand.
The financing needs of SOEs “could place further upward pressure on the currency and long-term market interest rates for all borrowers”, the Reserve Bank said in its monetary policy statement in July.
SA consumers have had to be frugal as record high unemployment and feeble economic growth prospects have eroded confidence and put pressure on disposable income. Large retailers Shoprite, Woolworths and Massmart released trading updates last week which all lamented the dire state of consumer spending and flagged a drop in profits.
Consumers received relief at the pump last month to the tune of more than 90c/l on petrol and nearly 60c on diesel. Before the adjustment, the petrol price had been at R16.76, its second highest level yet, after crude oil prices surged on supply worries due to political tension in the Middle East.
The latest set of price adjustments will take effect on Wednesday, lowering the inland price of 550ppm diesel to R14.33 per litre and increasing 93 and 95 octane petrol to R15.72 and R15.92, respectively. The price of illuminating paraffin will decline by 2c.