The rand fell to its lowest in two weeks, breaching the R19-mark to the US dollar yesterday after the government announced that fuel prices will increase to their highest in nine months on the back of rising oil prices and a weak exchange rate.
The local currency weakened to R19.05 to the greenback in spite of hopes in the market for a pause in the Federal Reserve’s interest rate hikes after employment data out of the US showed an easing of labour market conditions.
The fuel price hike, coupled with renewed concerns over the domestic economy due to intensified power cuts, wiped out all the gains the rand has made since inflation dipped to the midpoint of the South African Reserve Bank’s target range of three percent to six percent.
International factors such as higher oil prices also dimmed sentiment against the rand as Brent crude oil strengthened above $88 per barrel yesterday, hovering at the highest levels since January.
This was underpinned by expectations that Opec+ leaders would extend measures to keep oil supplies tight as Saudi Arabia, the world’s biggest oil exporter, is expected to extend its voluntary output cut of one million barrels per day into October.
The Department of Mineral Resources and Energy (DMRE) yesterday announced a hefty fuel price adjustment for September, which will hit motorists hard at the pumps and possibly affect consumer inflation.
The DMRE said the average Brent crude oil price increased from $79.75 to $84.78 during the period under review because of tightening supply resulting from production cuts by Saudi Arabia.
The rand also depreciated on average against the US dollar during the period under review, from R18.28 to R18.67.
This led to higher contributions to the basic fuel prices of petrol, diesel and illuminating paraffin by 29.60c/litre, 31.33c/litre and 31.58c/litre, respectively.
According to the DMRE, petrol prices will be going up by R1.71 per litre, and diesel will be hiked by between R2.76 and R2.84 a litre from Wednesday.
This means that the price of 93 Unleaded petrol will increase from R22.43 to R24.14 per litre while 95 Unleaded will rise from R22.83 to R24.54 per litre, and diesel goes up from R20.52 to R23.28 per litre.
This will be the highest that fuel prices have risen since December 2022, when 93 Unleaded was R23.16 per litre, and it is the third-highest fuel price in history, after it reached R26.31 per litre in July 2022 and R24.99 per litre in August 2022.
The significant hike in diesel prices will also increase the costs of running generators for businesses during load shedding.
Last week, SARB economists Zaakirah Ismail and Christopher Wood said fuel prices were a key driver of inflation and accounted for between 40 percent and 60 percent of the final retail petrol price over the past decade.
However, they said there were at least four ways that the government can intervene and address rising fuel prices in the country, including dealing with one of the biggest tariffs that make up the total.
AA spokesperson Layton Beard said diesel prices were a significant input cost and that cost has to be recovered through higher prices at the tills.
“Motorists will certainly feel the pinch in terms of higher prices at the pumps but consumers across the board can expect higher prices for all goods and services because of these hikes,” Beard said.
“The SARB economists found that there are factors that can mitigate against these rising fuel costs, amongst others looking at this issue of third party insurance, the Road Accident Fund, the levies that we pay on fuel, all of these issues that comprise the basic fuel price.
“They are feeling much of it because the position is that it’s been poorly managed and there is no benefit that citizens are deriving from paying the R2.18 RAF levy on every litre of fuel. And for that reason, alternatives must be sought.”
Meanwhile, the JSE All Share Index traded in the green and rose 0.8 percent to 75 375 points, in line with major global bourses, on hopes of a pause in the Fed’s interest rate hikes and optimism surrounding Chinese stimulus measures to boost the world’s second-largest economy.