Fuelling inflating

2008-07-04 00:00

This week South Africans suffered what has become a regular monthly shock to their pockets. The latest rise in the price of petrol was particularly severe, promising further inflation and interest rate hikes. It also threatens the government’s macro-economic policy, the trade balance and the rand exchange rate.

South Africa’s economy is characterised by extreme poverty and wide income disparity. The cost of petrol affects the most basic of human needs. But 20% of the pump price goes to the government in tax, a levy and a contribution to the Road Accident Fund. Surely the time has come to review these regressive charges that have a disproportionate effect on the poor.

Historically, tremors in the world economy have been caused by the escalating price of fuel. Exactly how much remains in the ground is obscure, like other vital statistics about oil, but there is the possibility that production from existing reserves is now peaking. Its volatile and generally upward price indicates that demand is outstripping supply, a situation in which speculators flourish.

Major reserves are located in politically unstable regions. Production in Nigeria and Iraq is currently depressed and there are serious concerns about Israel’s intentions towards Iran. Oil is traded well in advance of production, so the price is adversely affected by political uncertainty. Currently it is also being used as a hedge against dollar weakness.

It would take a leap of unwarranted faith to assume that monthly price increases will stop soon. More realistically, South Africans need to start thinking creatively about decreasing dependence on oil. Given the serious weakness of the rand, maintaining existing consumption levels will simply fuel further inflation.

Part of the solution lies squarely in the hands of the government: to provide safe, affordable and reliable mass transit systems in urban areas; and switch heavy, long-distance traffic back to the railway. But individuals will also have to face reality and reconsider energy consumption, particularly their use of vehicles. Recently announced fuel economy and emission standards are an excellent start. And from an environmental angle, this situation could be a blessing in disguise.

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