FUEL prices in South Africa could increase drastically in June as the government's short-term relief measures come to an end this month while crude oil prices remain elevated above $100 (R1 577) per barrel due to the ongoing war in Ukraine.
Last month, the government announced a two months reprieve of a R1.50 decrease per litre in the general fuel levy as the basic price of petrol was threatening to rise for the first time above R23 per litre.
Economist Professor Heinrich Bohlmann yesterday said that the end of the temporary intervention could mean a significant petrol price hike was looming for South Africa in June.
Speaking at the 4th annual Academy of Sciences Business Leadership Forum, the Associate Professor at the University of Pretoria said the war in Ukraine has had serious effects on the oil price and South Africa’s economy.
In March, the global price of Brent crude oil rose to 14-year highs at $139 per barrel after the US and its European counterparts threatened to sanction Russia, the world’s third largest oil supplier, following Moscow’s invasion of Ukraine.
Bohlmann said that the war has seen oil prices jumping significantly from around $70 to $110 per barrel since January, after having dipped to extreme lows at the height of the Covid-19 pandemic in 2020.
He said that fuel prices had risen to worrying levels even though the rand/dollar exchange rate had remained “fairly stable” due to geopolitical volatility.
“But it could have been significantly worse because what has happened is that as part of the relief to consumers, the general fuel levy was cut by R1.50 which has mitigated a significant amount of the increase that would have been felt had the normal formula been followed,” Bohlmann said.
“That though is only temporary relief as it is due to expire at the end of this month. In the status quo we are in for a rough ride with the petrol price next month if the fuel levy returns to its normal level, and the rand\dollar having depreciated quite a bit, oil prices still above $100, a significant fuel price hike is on the cards again next month.
“And that does not bode well for inflation in general and affordability in a country that is already struggling economically.”
FNB Wealth and Investments’s head of investment Renzi Thirumalai concurred that higher fuel prices had a knock-on effect on South African consumers in terms of transport costs and consumer prices.
“Higher fuel prices result in higher inflation and may lead to increases in interest rates,” he said.
“Higher interest rates will have a negative impact on bonds and while cash rates will increase, they may not be sufficient to offset the impact of higher inflation.”
South Africa’s headline consumer inflation rate remains at the top of the Reserve Bank’s target range at 5.9 percent.
Moody’s Investor Services on Wednesday warned that inflation could rise to 8 percent this year amid the global impact of the Ukraine conflict and rising US interest rates.
Bohlmann said he was not hopeful that the temporary petrol price relief would be extended as this could leave a gaping hole in the fragile ficus.
The government estimated that the partial reduction in the fuel levy will cost around R6 billion in foregone tax revenue for the two-month period.
“We have to remember that you don’t get something for nothing. The general fuel levy makes up a considerable component of tax revenue for the country, between R70-R80 billion of tax revenue is purely from the general fuel levy,” Bohlmann said.
“So by cutting that for a considerable period of time, as many might hope they do, means there’s going to be an under-collection of revenue in that regard and the government is already spending more than it gets from tax revenue.”
BUSINESS REPORT ONLINE