Bad news about petrol price in South Africa

The Department of Petroleum and Mineral Resources has announced increases in the price of petrol and diesel in December.

The latest fuel price adjustments, which will kick in on Wednesday, 4 December 2024, sees Petrol 93 and Petrol 95 increase by 17c per litre.

The wholesale price of Diesel 0.05% will increase by 54.88 cents per litre, and the price of Diesel 0.005% will increase by 55.88 cents per litre.

Illuminating Paraffin will increase by 48.88 cents per litre, and liquefied petroleum gas (LPGAS) will rise by 172.00 cents per kg.

The higher prices were mainly due to a weaker rand and a net increase in the annual margin adjustments on petrol and diesel.

The Central Energy Fund said that during the period under review, the average international product prices for petrol decreased while diesel and illuminating paraffin increased.

However, the South African rand weakened against the US Dollar following Donald Trump’s US election victory.

The average rand/US Dollar exchange rate from 01 November 2024 to 28 November 2024 was 17.93, compared to 17.53 during the previous period.

This 2.3% weakening of the local currency resulted in a higher contribution to the Basic Fuel Prices of petrol, diesel and illuminating paraffin.

It increased the input costs for petrol by 22.35 c/l and diesel by 23.74 c/l. The weaker rand also meant it cost 23.62 c/l more to produce illuminating paraffin.

Another contributing factor to the higher petrol and diesel prices in South Africa is the increased margin.

Minister of Mineral Resources and Energy Gwede Mantashe approved a net increase of 15.4 c/l in the annual margin adjustments on petrol.

He also approved a net increase of 8.88 c/l in diesel and illuminating paraffin wholesale prices, effective 04 December 2024.

These factors counteracted the reduction in the price of crude oil over the last month, which is why petrol and diesel prices increased.

The table below shows the changes in the petrol and diesel prices on 4 December 2024.

Double whammy for South Africa

Increasing petrol and diesel prices has a significant knock-on effect on the South African economy, which is bad news for consumers.

Most of South Africa’s products are transported by road because of problems with the rail operator, Transnet.

Higher petrol and diesel prices result in the price of many products transported by roads increasing, which in turn drives up inflation.

Road Freight Association CEO Gavin Kelly previously explained that as the fuel price climbs, people will pay more for the things transported by road.

Kelly said fuel constitutes 55% of the operational cost of moving a truck. Therefore, it directly impacts the cost of products transported by road.

Fuel price increases can significantly increase inflation, slowing down the rate at which the South African Reserve Bank (SARB) cut interest rates.

For example, the large fuel price cuts implemented in recent months helped drive down inflation and made a rate cut decision easy.

Petrol and diesel prices decreased by 22.2% and 26.9% year-on-year, respectively, in October, which helped producer price inflation (PPI) decline by -0.7% year-on-year.

However, November saw a modest lift in fuel prices due to rand depreciation, which will weigh on the month’s inflation outcome. 

The latest petrol and diesel price increases continue this trend, which will be reflected in inflation figures.

Should inflation increase from its previous prints, interest rates may stay higher for longer.