Fuel price increase to put more pressure on inflation rate

The fuel price increase will put more pressure on the inflation rate, economists say. This also means low-income consumers will bear the brunt of the increases as they will pay more for transport, as well as R1.01 per litre more for illuminating paraffin for cooking the little food they can afford.

From Wednesday, 95 octane petrol inland will cost R20.14/l with the same fuel costing R19.42/l at the coast, just 15 cents less than they did in December.

Prof. Jannie Rossouw, visiting professor at the Wits Business School, says he hopes the department of mineral resources did not make a mistake again with calculating the new price like it happened at the beginning of December last year when an extra 6 cents were added.

However, it is difficult to check currently because the department does not share the information on its calculations anymore.

ALSO READ: Petrol and diesel prices to increase from Wednesday

Inflation rate will increase

Rossouw says the new increases will definitely put upwards pressure on the inflation rate.

“The question now is what government will do about the fuel levy in the budget later this month. Consumers must really start thinking about voting in a new government if they want to stop this cycle.”

Prof. Bonke Dumisa, independent economist, says he expected the increase for petrol to be even higher as Brent Crude oil was already under pressure in December and now costs more than $5 more than in December, which is a huge difference.

“The increase will have a negative multiplying effect on prices, especially the prices of fast-moving consumer goods that is delivered by road transport. However, we do not live in a socialist country and we must let the market forces sort it out.”

ALSO READ: Low-income consumers still battle high food prices – food basket survey

Time to look at fuel levies

Layton Beard, spokesperson of the Automobile Association, says the large increase in the price of illuminating paraffin in particular will hit poor people hard, as many of them rely on this fuel for lighting, heating and cooking.

Pointing out that the major factor in the latest hike is the rapid strengthening of benchmark crude oil prices to nearly $90 a barrel, Beard says the last time Brent Crude touched current levels was in October 2014, more than seven years ago.

“A combination of factors is pushing oil higher, not least the imbalance between supply and demand as the lower-than-expected economic impact of the Omicron variant pushes economic activity higher and crude production lags.”

He says the political jitters around the Ukraine, which could see a switch to increased oil use throughout the EU if Russia restricts natural gas output in response to sanctions threatened by the USA and United Kingdom, will also put more pressure on the oil price.

“The strength of the Rand relieved the burden of the increases somewhat. Without the Rand’s recent strength against the US dollar, the price hikes would have been around 25 cents higher than they are.”

Beard says the AA is also calling for a review of the fuel levies. “The increases for February are significant and push our country’s fuel prices near record territory again and will, undoubtedly, have a knock-on impact on other consumer products and services.”

The AA’s petition to #ReviewTheFuel is gaining momentum and close on 25 000 people have already signed it to urge government to initiate a review of all the components of the fuel price, as well as conduct an audit of all existing elements to determine if they are still applicable and correct.

“Our call is for the Minister of Finance to announce such a review in his Budget Speech in Parliament on 23 February as a first step towards mitigating against rising fuel costs effectively for the benefit of all South Africans,” Beard says.

Wayne Duvenage, CEO of Outa, also says it is time for government to review fuel levies.

“The increase is obviously due to market prices and the weaker rand, but the weaker rand is due to poor economic policy.”

ALSO READ: Repo rate increases by another 25 basis points

Fuel price will push inflation over 6% threshold

Economist Mike Schűssler expects to see the higher diesel price to have a huge impact on prices as everything has to be transported by road as the rail system is not working.

“The fuel price does not usually increase in January and February and now it is increasing even before the budget where the fuel levies are announced.”

He expects the higher fuel price to push inflation over the 6% threshold of the Reserve Bank, which will in turn mean more repo rate increases.

Consumers can expect even more increases as fuel prices are increasing worldwide. Schűssler also does not expect the minister of finance to help consumers.

“He has no money to give and I am sure he is thinking of new taxes to increase government revenue.”