Government keeps fuel prices high – SARB economists

The fuel price has increased at a rate well above inflation over the last two decades thanks to above-inflation increases in levies and price margins administered by the government. 

This was revealed in a study released in August by South African Reserve Bank economists Zaakirah Ismail and Christopher Wood. They analysed the effect of government-administered prices on inflation in South Africa.

The fuel price is a major driver of inflation through transport costs and as a universal input in the production of goods. 

Fuel price inflation can also drive wage inflation by increasing the cost of basic goods and services. 

The economists warned that even short-term fuel price spikes could trigger stubborn inflation through wage and price increases. 

South Africa is a net importer of petrol, which makes the local fuel price highly dependent on fluctuations in the global oil price. 

However, the country is unique in that over the past decade, administered elements of the fuel price have accounted for between 40% and 60% of the final retail petrol price. 

The most important elements of this are the increases to the fuel levy, retail price margins, and substantial increases in the Road Accident Fund (RAF) levy. 

The retail margin, RAF levy, and transport cost components increased by 40%, 44% and 49%, respectively, in real terms over the 10 years to November 2022. 

These price increases result from a combination of deliberate policy choices, institutional failures in the case of the RAF, and the specific methodological choices made by the price-setters at the Department of Mineral Resources and Energy. 

The only years the basic fuel price and levies administered on fuel did not increase above inflation were during the Covid-19 pandemic and its associated lockdowns. 

From 2015 onwards, administered levies on the fuel price have exceeded the basic fuel price as a share of the final retail price of petrol.