Where to from here for record petrol prices?

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Based on early indications in July there may be another fuel price increase in August, but it is too soon to call, said the Automobile Association (AA).

The 26 per litre and 23c/l hikes for 95 and 93 petrol respectively, will kick in at midnight on Tuesday. It brings the price of petrol for motorists to a record-high of over R16/l.

An AA spokesperson told Fin24 by phone on Tuesday that it is hard to predict if there will be another fuel hike in August. The price of oil changes on a daily basis as does the exchange rate, and there will be a better indication of possible fuel hikes later in the month.

However Efficient Group economist Dawie Roodt warned that a possible fuel increase in August could even be greater if the rand continues to slide and if the oil price rises further.

Economist Mike Schüssler believes that the fuel price could reach a ceiling, if the rand stabilises and if oil prices come down.

He said that the fuel price could contribute 0.3 percentage points to inflation for the month. Essentially over the past four months, fuel hikes amount to R2.20 to R2.25 and has been a major driving force of inflation.

But, Schüssler projects that inflation will remain within the 3% to 6% target band of the South African Reserve Bank (SARB). He expects it to go up to 4.8% for June and slightly higher in July.

PwC economist Christie Viljoen also expects inflation to be higher in coming months, mainly due to added pressure from fuel price increases. “The SARB is unlikely to consider any further interest rate cuts this year, and will favour keeping the repo rate on hold… The addition of fuel price pressures to headline inflation could result in monetary policy tightening sooner rather than later,” he said.

Viljoen added that at the next Monetary Policy Committee meeting, the SARB is likely to consider the fuel price increases when it makes its inflation forecasts. He also expects inflation to remain within the target band. “I don’t think that 6% is at risk. Obviously, there might be a month or two where it could touch on that - but not sustained breach on its own could cause the Reserve Bank to lift interest rates.”

Viljoen said that the Reserve Bank is also likely to either keep rates on hold or raise them as opposed to cutting them.

He also could not say for sure if there would be a fuel hike in August. “Fuel prices are quite volatile from month to month.

“While the long-term trend is for an increase over time - associated with a long-term depreciation of the rand and increases in taxes and levies - projections are hard to do,” he said.

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