Petrol price hikes to squeeze consumers who are already struggling
All graded of fuel are going up at midnight
BUSINESS
There is no respite for consumers as the petrol prices go up at midnight on Tuesday on the back of an increase in the price of Brent crude oil. Consumers who are already under pressure from high interest rates, food prices and energy costs will have to dig deeper into their pockets to fill up the tank, starting on Wednesday.
This comes as oil prices rallied to a three-month high early in the week, after hovering around $81 (R1 469) a barrel last week. The rally follows better-than-expected global demand and supply disruptions in both Nigeria and Libya, as well as the output cuts by the Organisation of the Petroleum Exporting Countries driving up the oil price to over $85 a barrel by midday on Tuesday.
The increase comes despite an improvement in the rand and a stay in interest rate hikes by the Reserve Bank last week.
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"The rand reached R17.42 against the US dollar last week, strengthening as well against the key crosses, reaching R19.35 against the euro and R22.49 against the pound, with appetite in global financial markets strengthening for risk assets,” Investec chief economist Annabel Bishop explained. “Foreigners have purchased R11.3 billion worth of South African bonds to date this month, net of sales, and R25.8 billion since the start of June, strengthening the rand, along with more recent US dollar weakness.”
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FNB senior economist Koketso Mano said political manoeuvrings have also aided the rand’s performance.
“Assertions that Russian President Vladimir Putin will not attend the BRICS summit this month have allayed fears of an imminent rand negative event dampening upside pressure to fuel prices, as we have seen. We also think that the improvement in rand sentiment and moderating dollar strength should also be supportive.”
Mano is concerned about the inflationary impact of the petrol price increase.
The concerning thing is: expectations that inflation will be stubborn are evident in higher forecasts for next year and this will probably result in interest rates being higher for longer.
FNB senior economist Koketso Mano
Prices will go up for both petrol and diesel. The prices for both grades of petrol will rise by 37c per litre, while the wholesale price for diesel will increase by 72c per litre.
This means the inland unleaded 95 petrol price will rise to around R22.80 per litre and wholesale diesel prices will be just a touch above R20.20 per litre.
Mano said both the petrol and diesel prices would still be 10% and 18% below where they were last August.
Local growth and political risks are pronounced, and rand undervaluation should continue to increase in the near term before moving closer to fair value in the latter part of next year. So, overall, this supports a slight rise in trading fuel prices in the near term.
FNB senior economist Koketso Mano
“Growth in global activity should be constrained relative to the pre-pandemic period. This should weigh on oil demand, but producers have shown willingness to actively cut output in support of prices. We've also seen the US starting to replenish its strategic petroleum reserves, which should also support a generally tighter market,” she added.
