Dr Chris Harmse
CAPE TOWN - The petrol price will increase by between 23 cents and 27 cents per litre on Wednesday.

This means that a litre of 95ULP will cost R16.02 per liter. This is the highest price that the consumer ever had paid. It is also the fourth consecutive month of increase. 

The price for 95 ULP petrol (Gauteng) is now 226 cents or more than 16% higher than the beginning of March. 

A year ago, motorists in Gauteng paid a mere R12.86 per litre. This is 320 or 25% lower. In January 2012 the price was a R10.61 or R5.45 cents (51%) cheaper. 

For diesel consumers in Gauteng will pay R14.44 per litre or 347 cents (32%) than a year ago. For the agriculture sector this imposes a huge increase in their input costs either to harvest the current crop and to plant the coming summer crop, as well as the effect on the Western Cape winter crops.

The reasons for the petrol price increase varies but mostly are due to the sharp increase in the international oil price and to a lesser extent the depreciation of the Rand. The average Brent oil price during June 2017 was $46 per barrel. 

This is $28.39 or 60% lower than the average of $75.94 during last month (June 2018). Over the year the Rand/$ exchange rate depreciated from R13.06/$ at the beginning of June 2017 to a close of R13.76/$ on Friday. This is a depreciation of 5.5%.

The sharp increase in the fuel price will continue to have severe negative effects on the economy and the man in the street. 

The contribution of fuel prices to the inflation basket is 4.58%. 

An increase of 28% over the last year in the average prices for fuel would have contributed to an increase of 1.2% in the inflation rate. 

According to STASSA, the transport index in the inflation index contributed 0.3% to the monthly increase in the inflation rate during April and to the total 0.2% of the increase in May. 

The index now contributes to 0.7% of the total inflation rate of 4.4%, the second biggest item and higher than the 0.6% contribution by food and non- alcohol beverages.

The current strong increase in fuel prices not only put high pressure on the private transport sector, namely private motor cars, Taxis, public bus transport and even Uber transport but will make it more difficult for a lot of commuters to travel to and from work. 

This again is likely to imposes social and other negative effects on the consumers.

The other question that also brings about a big worry is what the central government will do with its tax levy during its next main budget in February. This year the fuel tax was increased by 52 cents per litre. 

The Minister of Finance will have to be very care full in rising the fuel levy to that extent again next year. 

This may impose a serious threat to the national government to address his current deficit and to find the extra at least R30 billion Rand to pay for civil servant’s salary increases and or to finance the state-owned enterprises.

Dr Chris Harmse is the Chief Economist at Rebalance Fund Managers.

-BUSINESS REPORT