Fuel prices a sore thumb for businesses, consumers

Higher fuel prices have contributed largely to the increase in March inflation, and industry has warned of the effects it is having on business profitability.

Stats SA on Wednesday released March inflation figures, which increased to 4.5% compared to 4.1% reported in February.

Transport costs were among the major contributors to the higher inflation. Transport costs, in turn, were influenced by higher fuel prices.

"The 74c/l increase in the domestic petrol price in March was the key driver for this acceleration," FNB Economist Mathlodi Matsei noted in a report on the inflation figures.

In a separate report Investec economist Kamilla Kaplan noted that fuel prices increased 8.8% compared to March 2018, and increased 5.1% compared to February 2019.

"Inflation is expected to drift higher over the coming months, and average 4.9% y/y in 2019, mainly on higher administered price inflation," she added.

Kaplan said that by 2020 inflation could rise towards the upper end of the SA Reserve Bank's target range between 3% and 6%, diminishing any chances of an interest rate cut.

Lullu Krugel, Chief Economist for Strategy& PwC Africa, and Christie Viljoen, Strategy& PwC Economist, remarked in a report that this is the 24th consecutive month that inflation has remained within the target range.

However, in a statement, chief economist of the Steel and Engineering Industries Federation of Southern Africa (Seifsa) Michael Ade said it is "disconcerting"" to see inflation at the mid-point of the target range.

It means businesses will have to closely monitor petrol prices, the volatile exchange rate and unpredictable electricity supply for changes, as they could contribute to costs, Ade said.

The latest inflation figures are a concern for the metal and engineering industries, as well as the manufacturing sector, which are challenged by increasing costs of intermediate products, he explained. "Moreover, overindebted consumers are not afforded a reprieve from oscillating petrol prices and a general rise in the prices of goods and services underpinned by a weaker rand and a difficult economic environment," he added.

Meanwhile, the Department of Energy has said that it is still investigating the feasibility of implementing a fuel price cap on unleaded petrol. Energy Minister Jeff Radebe had mentioned the idea in October 2018 to help cushion consumers from the effects of the rand exchange rate and higher oil prices, which are drivers of higher petrol prices.

A department spokesperson told Fin24 that discussions are at an advanced stage, and the outcome would be announced in due course.


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