Fuel price set to decline

A motorist holds a fuel pump at a Gulf petrol station in London in this April 18, 2006 file photo. Oil dropped nearly 2 percent on March 20, 2012 as Saudi Arabia sought to knock back crude's price rise that has threatened the global economy, with the oil minister offering the most detailed argument to date that the OPEC nation was prepared to meet any supply shortfall. REUTERS/Luke MacGregor/Files (BRITAIN - Tags: BUSINESS ENERGY COMMODITIES)

A motorist holds a fuel pump at a Gulf petrol station in London in this April 18, 2006 file photo. Oil dropped nearly 2 percent on March 20, 2012 as Saudi Arabia sought to knock back crude's price rise that has threatened the global economy, with the oil minister offering the most detailed argument to date that the OPEC nation was prepared to meet any supply shortfall. REUTERS/Luke MacGregor/Files (BRITAIN - Tags: BUSINESS ENERGY COMMODITIES)

Published Jan 28, 2015

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Consumers can look forward to another petrol price cut next week as international oil prices have more than halved recently.

Mamello Matikinca, an economist at RMB Global Research, said yesterday that indications suggested fuel costs could go down by about 90 cents per litre next week. The last time petrol prices were at these levels was before 2012.

“Consumers will be paying around R3 a litre less than what they were paying at the same time last year. While the decline in fuel prices may leave the consumer with extra cash, spending will be constrained should electricity shortages translate into less operational hours for retailers,” she said in a research note.

Matikinca said the good news for the consumer was, however, tempered by the energy constraints.

She said load shedding by Eskom on Monday and yesterday emphasised the strain the grid was under.

“This is expected to continue throughout the week and poses downside risk to our bearish expectations of 1 percent quarter-on-quarter growth in the first quarter of 2015.”

She said the electricity crisis was one of the biggest risks facing the economy in 2015.

“Continued disruptions are likely to translate into offshore sourcing of products and consequently a widening of the trade balance as the technical rebound expected in exports is hindered by power constraints.”

Johann Els, a senior economist at Old Mutual Investment Group (OMIG), said in 2014 consumers spent R106 billion on fuel. “The petrol price drop will mean a saving of some R20bn, or about 1 percent of consumer spending,” he said at OMIG’s first quarterly briefing. He said the next obvious positive impact would be on inflation.

“We expect headline inflation to fall sharply further from the number of 5.5 percent at the end of 2014 (and a peak of 6.6 percent) to close to 3 percent by April. We expect average 2015 inflation to be 3.8 percent, sharply down from the 6.1 percent in 2014,” he said.

Els said the sharp fall in inflation would result in a boost to real consumer income growth and therefore real consumer spending growth should lift.

He said another positive impact from lower oil prices should be a sharply smaller current account deficit.

“Given that oil accounts for 17 percent of all imports, each 20 percent drop in oil price, sustained for a year, lowers the current account deficit by about 0.6 percent of GDP (gross domestic product). We expect the current account balance ratio to improve from minus 6 percent of GDP in 2014 to minus 3.8 percent in 2015.”

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