Economists said consumers would do well to take advantage of lower fuel prices this month, because the impact of the weaker rand would definitely be felt next month.
Durban – With consumers battling interest rate hikes and rampant inflation outstripping salaries, a rare bit of good news of fuel price decreases was widely welcomed on Monday.
Consumers have been under pressure after the South African Reserve Bank (SARB) hiked the interest rate by 50 basis points last month. The inflation rate was 6.8% in April, a slight drop from 7.1% in March.
The Department of Mineral Resources and Energy (DMRE) announced on Monday that both grades of petrol (93 and 95 ULP & LRP) will decrease by 71 cents per litre while diesel (0.05% sulphur) will decrease by 84c per litre and diesel (0.005% sulphur) will decrease by 80c per litre tomorrow.
Economists have welcomed the news but warned that due to the weaker rand, a fuel price increase might be on the cards next month.
Professor Irrshad Kaseeram, of the University of Zululand’s economics department, said that it was a significant drop in the fuel prices.
He said that hopefully the decreases would help to stabilise food prices. However, he added that this month’s good fortune may be undone next month due to the volatility of the markets.
“Unfortunately, these prices are volatile in the sense that this might be reversed next month due to external shocks or sentiments shifting against emerging markets like South Africa. This leads to capital outflows bringing about a weakening exchange rate which causes imports to rise and upward pressure on inflation and interest rates.”
Economist Dawie Roodt said it was welcome news that the fuel prices would decrease. “We can attribute this to the lower price of international Brent crude oil. This will help the cash-strapped consumer.”
But he said the relief may be short-lived given the current rise in the price of Brent crude, which may affect next month’s fuel prices.
University of KZN economics lecturer, Dr Sanele Gumede, agreed that consumers would do well to take advantage of lower fuel prices this month, but added that the impact of the weaker rand would definitely be felt next month.
“We will see a fuel price increase. However, it is good news for now as the diesel price has decreased and this will help Eskom as electricity uses a lot of diesel and this will help with the power supply. Trucks also use diesel and this will be a welcome relief and will filter through and result in hopefully lower food prices.”
Spokesperson for the South African National Taxi Council in KwaZulu-Natal, Sifiso Shangase, said the industry welcomed the decrease in the price of fuel, but it was not enough.
He added that taxi fares would go up next month.
“Unfortunately we will still have to increase our taxi fares in July. The problem is we need a more stable system as it is very difficult when the fuel price decreases and then goes up the next month. Unfortunately the interest rate hike also affects us as some are paying back vehicle finance loans for their taxis, and paying more for their debt.”
Layton Beard, the spokesperson for the Automobile Association, said that the decreases announced yesterday were a lot lower than those forecast in mid-May. He said that at that time, decreases of about R1/l for petrol, R1.30/l for diesel and around 60c/l for illuminating paraffin had been forecast.
“However, the weakening rand against the US dollar, as well as increases to international product prices have tempered those numbers.”
Beard added that any relief at this stage was welcomed.
“Increasing interest rates are adding enormous pressure on already embattled consumers in a weak economy. Many people are struggling to make ends meet and any relief, even if it is slight, will assist consumers.
“The forecast decreases to the price of diesel are especially welcome given that this fuel accounts for significant input costs across all sectors, which are often passed on to consumers.”
