The 36 cents per litre drop in fuel price is merely a temporary reprieve for consumers as South African's will see further tax increases this year. Picture: Dumisani Sibeko

CAPE TOWN - The 36 cents per litre drop in fuel price is merely a temporary reprieve for consumers, says Chief Economist at Investec Bank Limited South Africa, Annabel Bishop. 

The fuel decrease, as announced by the Automobile Association (AA) last month will also see consumers paying significantly lower for diesel as well as paraffin. 

Diesel will drop by 47 cents while paraffin will see a 26 cents decrease. 

Bishop said that despite these decreases, individuals should bear in mind that South Africa is still economically constrained. She said that although the fuel drop will be a reprieve for consumers, this will in fact be counteracted by the expected fuel levy in April. 

The fuel levy will see a 53 cents increase on April 1, 2018, as announced by President Cyril Ramaphosa in his Budget Speech. 

Bishop noted that the fuel levy is among more expected tax hikes that are expected this year. This includes the Sugar tax increase as well as the sin tax increase on tobacco and alcohol products. 

When asked whether it is possible for the fuel rate to remain consistent, Bishop said that this is decidedly influenced by both the international oil price as well as the rand-dollar exchange rate.

"South Africa does not determine the petrol price, however, they do determine the taxes on petrol", said Bishop. 

Similarly, Momentum Investment Economist, Sanisha Packirisamy said that the reason for the increase in fuel has also been driven by conflict in the Middle East. 

"Conflict in the Middle East and a decision to curb supply by the major oil producers has cut international supplies, driving up the dollar price of oil. The rand-dollar exchange rate remains vulnerable to negative swings in global and local sentiment. As such, the monthly change in fuel prices is to a large extent driven by external factors", said Packirisamy. 

READ ALSO: Mixed views on fuel price drop

Packirisamy added that the cut in fuel prices will be more than reversed next month. 

Given the fact that transport costs are seen as a non-discretionary item of spend, it is an expense that cannot be avoided, she said. 

When asked whether South African will recover from these tax burdens, Bishop warned that South Africa should brace themselves for further tax increases in 2019. 

“There is still a huge amount of work to be done as the country’s fiscal health is not enough”, concluded Bishop. 

ALSO READ: Stronger rand reason behind February fuel price drop

TOP STORY: Eskom to reduce corporate headcount