Cars filling up with petrol at an Engen garage in Johannesburg. Picture: Boxer Ngwenya
Cars filling up with petrol at an Engen garage in Johannesburg. Picture: Boxer Ngwenya

Motorists face steep fuel price rise

By Ethel Hazelhurst Time of article published Mar 19, 2012

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Motorists in Gauteng face a possible increase in the petrol price next month of 61c a litre or more.

The projected hike will be due to a 28c a litre rise in fuel levies announced in the Budget; a 22 percent increase in Transnet’s pipeline tariff, which will add an estimated 4c a litre; and a monthly adjustment to bring the domestic price of petrol in line with prices of a basket of international fuel products.

The average daily underrecovery was running at 29c a litre last week. Based on this figure, the combined increases would push the cost of 95 octane in Gauteng to R11.84 a litre.

But this is not the only bad news on the inflation front.

Over the past few years, the main source of inflation has been the cost of supplying critical goods and services like fuel and electricity. Now demand side pressures were emerging, Reserve Bank governor Gill Marcus said in Johannesburg last week.

“Most recent data suggest inflation is becoming more generalised and may reflect the emergence of demand pressures,” she said.

Investec group economist Annabel Bishop said demand driven consumer inflation had ticked up from 2.6 percent in September 2010 to 5.2 percent “and is likely to continue rising for the rest of the year”.

Despite the rising cost push and demand pull pressures on inflation, most economists expect no change in the repo rate from 5.5 percent when the bank’s monetary policy committee (MPC) meets next week.

While some commentators described the governor’s tone as “hawkish”, her comments made little impact on rates in the money market.

Standard Chartered head of Africa research Razia Khan predicted the next rate move would come in September, while Nedbank economists forecast a rise in the fourth quarter. However, Elna Moolman, the South Africa economist at Renaissance Capital, said she did not expect a hike before late next year.

Marcus discussed the damage inflation can inflict on the economy both by undermining investment and eroding purchasing power .

She argued: “Even moderate inflation is bad for the poor and for workers. An annual inflation rate of 10 percent, for example, which is regarded by some as acceptable, means a worker receiving R1 000 a month will need to be earning R2 590 in 10 years time, simply to be no worse off.”

The higher the inflation rate, the more purchasing power would be lost between bargaining rounds, she said. “With 20 percent inflation, this amount would need to be R6 190 a month, and with 25 percent inflation, the required income (in 2022) would be R10 000.”

Marcus said, with inflation at 25 percent, workers would have lost a quarter of their purchasing power by the time of the next wage adjustment.

Kevin Lings, the chief economist at Stanlib, said: “It is clear that, if the Reserve Bank feels the upside risk to inflation has risen, then it will hike rates even if the growth rate is fairly modest.”

However, it seems a rate hike is some way off, which should provide a breather to indebted consumers.

Carel van Aardt, the research director at Unisa’s Bureau of Market Research, said a half percentage point lift in the repo rate would push the ratio of household debt to income from 75 percent to 79 percent.

At the last MPC meeting in January, the bank forecast inflation would peak at 6.6 percent in the second quarter. - Ethel Hazelhurst

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