Fuel price shock for consumers in March

Economists have warned that a steep increase in the fuel price next week could well have an impact on inflation.

The predicted fuel price hike would be the second consecutive increase.

Layton Beard, spokesperson for the AA, said South Africans could expect a major upward shift in fuel prices in March.

“From mid-month fuel data released by the Central Energy Fund, the AA notes that the current data is projecting fuel prices to jump the R24/litre mark for both grades of petrol, edging close to the R25/litre record high seen last year.”

Beard added that mid-month data indicates that 95 octane petrol is set to increase by R1.35/litre, 93 octane by R1.31/litre, diesel by between R1.43/litre and R1.59/litre and illuminating paraffin by 96c/litre.

Economist Dawie Roodt agreed that a significant increase was expected.

“It will be a big increase of around R1.40 or R1.50. I do think it will have an impact on inflation, but not as much, as we did have a fuel price decrease two months ago and that will still have a positive effect on inflation.”

Roodt said the increase came at a time when the economy was not growing and consumers were suffering.

“The poor will be affected heavily by this. The rand is under a lot of pressure and is much weaker than it was a month ago and this is one of the major reasons for the fuel price increase.”

Johann Els, Old Mutual Group chief economist, said the latest official data from the Department of Energy suggested that the petrol price could go up by 120 to 125 cents per litre.

“This will lift March inflation by 0.3% versus what would have been the case had the petrol price been unchanged between February and March. I expect February inflation at 5.1% and March inflation at 5.0%. It could have been 4.7% if the petrol price did not go up.”

This would impact consumers, Els said.

“I had previously assumed a large fuel levy increase in the Budget that would have impacted April inflation. At least that did not happen. Also, in a weak economy, a large cost increase such as the February and March petrol price increases could potentially turn out to be deflationary.

“In other words, because most consumers have a limited monthly budget, when they have to spend more on petrol and transport costs, they tend to have less money available to spend on other products or services. I still expect inflation to reach the midpoint of the target range (around 4.5%) from May onwards.”

Professor Irrshad Kaseeram, of the University of Zululand's Economics Department, said the rand/dollar exchange rate was hovering at R19.20 to the dollar while Brent crude oil was trading in a stable narrow range at around $82 per barrel.

“These factors are driving up fuel prices. The rand is weak because sentiments are turning against South Africa’s growth potential given that the State of the Nation Address and the Budget speech didn’t have many positive developments to offer investors. In addition, the US will hold interest rates higher for longer, which makes dollar denominated bonds more attractive for investors, reducing demand for rand denominated bonds further.”

Meanwhile, the February 2024 Household Affordability Index compiled by the Pietermaritzburg Economic Justice and Dignity Group (PMBEJD) showed that the average cost of a household food basket dropped by R47.56 in February compared to the month before.

“The drop in cost has been a welcome relief for consumers, following an increase in the average cost of a household food basket from December 2023 to January 2024. The average cost of the household food basket for February 2024 is R5 277.30, according to the index.”

The PMBEJD said food price fluctuations were unpredictable and it was unsure whether the downward trajectory from October 2023 would continue this year, or if prices would rise in the coming months.

The Mercury