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JOAHNNESBURG - South African consumers should brace themselves for a noticeable increase in expenses in the festive season ahead as the price for fuel is likely to increase sharply during the beginning of December, with diesel up 17% year on year and petrol up 14% year on year.

According to the Central Energy Fund’ latest estimates, the price for petrol is currently under recovered by 66 cents per litre and that of diesel by 57 cents per litre. Under recovery implies that prices are about to increase by at least that margin next month. 

For diesel it will lead to a pump price in Gauteng of R12.92 per litre. This is 190 cents per litre higher than last year’s December pump price of R11.02, or an increase of 17.2 percent. 

The pump price for petrol in Gauteng will increase to R14.71 per litre or an increase of 14.4% on the pump price at the beginning of December 2016. 

The reasons for this ongoing increase in fuel prices are the steady but surely increase in the Brent oil price, as well as the depreciation in the Rand exchange rate against the Dollar. 

The price for Brent had increased from $56 per barrel at the beginning of October to the current level of higher than $63 per barrel.

This has contributed towards 41 cents under recovery in the landed international price for petrol of 41 cents and for diesel of 33 cents. 

During the same time the rand had depreciated from an average level of R13.70/$ on October 26, the date up to which the fuel prices were adjusted during the beginning of November, to an average level higher than R14.10/$ up to yesterday, November 8. 

This depreciation in the Rand exchange rate already had caused both the prices for petrol and diesel to be under recovered by 24 cents per litre. If the price for Brent oil remains at its current level and the Rand/$ exchange also remains around yesterday’s R14.23/$ (correct) the under recovering may even increase more by the end of November. 

The contribution of the fuel price in the inflation basket currently is almost 5%.

The increase in the petrol price of 66 cents per litre and for diesel by 49 cents per litre at the beginning of September had a big effect on the increase in the inflation rate from 4.8percent in August to 5.1% in September.

Fuel prices recorded an12.2% annualised increase and the transport sub-index where the fuel price has a substantial weight in, had increased its contribution to the total inflation rate of 5.1% to 0.8%, up from the 0.6% in August. Only the Food index now has a greater contribution of 0.9% of the total 5.1percent increase in the CPI. 

It is expected that the continuous increases in the Fuel price will also play a major role in the decision of the Monetary Policy Commission not to lower interest rates in months to come.

Chris Harmse is the chief economist at Rebalance Fund Managers.

-BUSINESS REPORT