Fuel price hikes have put a squeeze on consumers in the short term, but in the medium term, South Africans can expect stable prices, subdued inflation and falling interest rates.
This is the view of Old Mutual chief economist Johann Els, whose comments come after fuel price hikes came into place at midnight on Wednesday, 7 February.
The list below shows the price changes at retail level –
- Petrol 93 – Increase of 75c a litre
- Petrol 95 – Increase of 75c a litre
- Diesel 0.05% – Increase of 73c a litre
- Diesel 0.005% – Increase of 70c a litre
The Department of Mineral Resources and Energy attributed the price hikes primarily to the latest geopolitical tensions in the Middle East, with a focus on the recent attacks on oil cargo in the Red Sea.
In addition, extreme cold weather in the United States has resulted in higher inventory draws than expected. Since South Africa imports both crude oil and finished oil at prices set internationally, this leads to supply-side pressure.
Despite upward pressures on fuel prices, global growth is forecasted to slow this year, Els said.
This means declining demand for fuel and, in time, declining prices. In combination with a more stable rand, inflation is expected to slow. Interest rates will likely drop accordingly.
“If we look through that noise toward the medium to longer term, things will start to improve gradually,” Els said.
With consumers needing to spend more on petrol, they are likely to spend less on other expenses, meaning core inflation is likely to remain subdued.
Core inflation currently sits comfortably at 4.5%, the midpoint of the Reserve Bank’s target range.
“2024 should be a better environment for consumers than last year,” he said.
However, the 2024 economic outlook depends upon the future global political climate. Major political changes or escalations in the conflict could disrupt oil supply chains further, leading to higher inflation.
“We don’t know how the Middle East situation will unfold over the next few months. If there’s a blow-out and increased war activity, then certainly there would be upward pressure on oil prices, and then all bets are off,” stated Els.