OWN CORRESPONDENT and REUTERS, Johannesburg | Wednesday
SOUTH African motorists, already reeling from a series of fuel price hikes which has driven the price of a litre of petrol to R3,66, could be paying up to five cents more per litre from next month, which will put increased pressure on domestic inflation.
Strong international petroleum prices and a fresh slide in the rand to record lows against the dollar.are the main drivers behind the increase, says an official at the Central Energy Fund.
Diesel may also rise by four cents a litre from early next month.
The higher fuel costs are expected to fan domestic inflationary pressure. Retail pump prices have already risen by 25% since the start of this year, when petrol sold at R2,92.
The consumer price index surged by 6.8% in the year to August after rising 5.9% in July, boosted mainly by a 34% increase in domestic petrol prices during that period, Statistics South Africa said. Consensus forecasts had predicted a 6.9% increase.
At the same time, the CPIX index used by the central bank to target inflation climbed by 8.2% in the year to August, above 8.0% in July but below consensus forecasts of 8.3%.
“It was slightly better than expected…but it doesn’t take away any of the risk to the future outlook for inflation which is still up on the higher oil price and weaker rand,” PSG economist Noelani King said.
The Reserve Bank of South Africa, which holds its regular monetary policy meeting this week, aims to get annual increases in CPIX down to between 3% and 6% as an average over the whole of 2002.
In its quarterly bulletin the Bank said inflation pressures generated by steep global oil prices should be seen as temporary and domestic fundamentals augured well for the country’s price outlook.
“There is no sign of inflationary pressure from domestic demand and this should keep interest rates constant,” Gensec economist Peter Calitz said.
South African markets were reassured by the fact that the data was not worse than expected, with bonds firming slightly and the rand recovering after being knocked to a fresh low against the dollar by the beleaguered euro.
Economists are deeply divided on the direction of interest rates, with some predicting a hike early in 2001 in response to the threat to the inflation target posed by oil prices hovering stubbornly at decade-highs.
The weaker rand exacerbates that scenario, as it will raise the cost of dollar-denominated oil imports, and other foreign goods. The CPIX index is expected to peak at around 8.5% in October or November, then subside with global oil prices.
However, if crude oil prices remain well above $30 a barrel throughout the winter, all bets are off.