Petrol price hike to step up pressure

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File photo

Published Jan 31, 2013

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Consumers are facing a raft of price increases in coming months – including a hike in the petrol price next Wednesday. The potential increase in pump prices has been climbing over the past month on rising oil prices and a weakening rand.

The monthly adjustment to the domestic price, to keep it in line with a basket of international product prices, is based on the under- or over-recovery on the current price.

Since the start of the month, the price of benchmark Brent crude oil has risen from $111 a barrel to $115, the highest since September last year. And the rand has depreciated from R8.50 to the dollar to more than R9.

Due to this double whammy, the average daily under-recovery was running at nearly 37c a litre by Tuesday. As the under-recovery on that day was more than R1, the shortfall on an average basis for the month will be even higher by the time the announcement is made tomorrow.

An increase of even 37c on a litre of petrol would push the price of 95 octane in Gauteng to record levels – R12.23, above the peak of R12.20 last October.

After three consecutive months of price cuts, the upward pressure on petrol inflation had been moderating. In December, the petrol component of the consumer price index rose only 12.4 percent, down from 15.6 percent in October. But the trend is about to reverse and the higher cost of petrol will spill over into the rest of the economy.

The latest surge in the oil price was driven by expectations that the Federal Reserve would stimulate the US economy further.

The rand’s prospects are unclear. Current trade flows are unknown but earlier trade data showed a big gap between revenue from exports and the cost of imports – R112.7 billion between January and November last year. December figures will be released today.

At the same time, portfolio investment flows, which have traditionally funded the trade deficit, are threatening to reverse. Over the past 10 days, foreigners have sold more than a net R5bn worth of domestic bonds and shares.

The investor flight is due to ongoing social and industrial unrest and angry attacks on business by ministers and top ANC officials. And consumers foot the bill for the unfriendly environment by way of a weaker rand.

Together with proposed toll fees for Gauteng’s highways and electricity tariff hikes, still to be determined by the National Energy Regulator of SA, the higher petrol price will slice into consumers’ disposable income. Eskom has asked for a 16 percent increase in each of the next five years.

Next month’s Budget is not likely to bring an increase in income tax rates, but it could see a rise in traditional sin taxes and other taxes because, like most others, the government is strapped for revenue.

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