The world is changing fast and to keep up you need local knowledge with global context.
On Friday Biznews published an article highlighting the impending fuel price decline, a 51 cents per litre drop across all grades come Wednesday. A welcome note to consumers who had just been hit with a 25 basis point rate hike. The one point in the story highlighted the case for future cuts as bleak though, with analysts expecting the relief to be short-lived. In the below piece, well known economist Kevin Lings says that at this stage, given the daily over recovery of 82 cents per litre as of 30 July, the case is strong for another petrol decline come September. A point that will be taken with a keen interest by consumers. – Stuart Lowman
by Kevin Lings*
On Friday, 31 July 2015, the Department of Energy announced that the petrol price (95 and 93 ULP & LRP) will decrease by 51c/l with effect from Wednesday, 5 August 2015. This means that the price of 95 Octane (ULP, Gauteng) will now cost R13.26 per litre. The price of diesel will decrease by 76c/l and 74c/l (0.005% and 0.05), while the price of paraffin will decline by a significant 93c/l (retail price), and gas by 89c/kg.
During the fuel price review period, from 26 June 2015 to 30 July 2015, the average Rand/US Dollar exchange rate weakened from R12.32 to 12.41. The weakening of the Rand against the US Dollar increased the contribution to the Basic Fuel Price on petrol by 4.87c/l. Fortunately, this was more than offset by the sharp decline in the international oil price. The decline in the oil price subtracted 55c/l from the Basic Fuel Price. The net effect was a 51c/l decline in the fuel price.
Encouragingly, the daily over recovery on the petrol price on 30 July 2015 was a massive 82c/l. This means that at this stage it is entirely possible that the petrol will decline again in September 2015. Clearly, though a lot can happen to the exchange rate and oil price in a month.
The petrol price increase in August 2015 will reduce the monthly consumer inflation rate by 0.2 percentage points, which is meaningful. Unfortunately, other cost pressures are still likely to push SA consumer inflation over 6% in early 2016. These include electricity, water, education and insurance fees. Consequently, consumer spending is expected to slump further in the months ahead, aggravated by a further hike in interest rates.
*Kevin Lings is chief economist at Stanlib
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.