By Kevin Lings*
The Department of Energy announced that the petrol price for 95 and 93 ULP will decrease by 68c/l and 69c/l respectively from Wednesday, 5 July 2017. The latest announcement means that the price of 95 Octane (ULP, Gauteng) will now cost R12.86 per litre. The price of diesel will decrease by 60c/l (0.05% and 0.005% sulphur), while the price of paraffin will fall by 76c/l (retail price), and gas by 91c/kg.
Once the decrease in the petrol price comes into effect on 5 July 2017, the price will be R1.53/l (-10.6%) below the record high of R14.39 during April 2014 (see chart attached) and 48c/l below the price a year ago.
During the latest fuel price review period, from 2 June 2017 to 29 June 2017, the average Rand/US Dollar exchange rate was stronger at R18.27 compared to R13.26 during the previous month. The strengthening of the Rand against the US Dollar during the month decreased the Basic Fuels Price of petrol by almost 15c/l. More importantly, the oil price moved noticeably lower during the month, subtracting an average of 52c/l from the fuel price.
The petrol price decline in July 2017 will reduce the monthly consumer inflation rate by a massive 0.3 percentage points (based on the new CPI weights). This outcome is obviously encouraging and welcome news for consumers, but it is also good news from a monetary policy perspective. Last month, SA consumer inflation remained inside the Reserve Bank’s target range at 5.4%y/y, and is expected to move below 5% over the next two months, remaining inside the target until at least the end of 2018. This should encourage the Reserve Bank to cut interest rates before the end of 2017 and possibly again in early 2018, especially given the weakness in the domestic economy. In deciding to cut rates the Reserve Bank will be mindful of the vulnerability of the Rand exchange rate to changes in global investor sentiment towards emerging market economies.
- Kevin Lings is chief economist at Stanlib.Â
