The falling fuel price was a boon to the economy equivalent to a one-percent cut in interest rates, T-Sec chief economist Mike Schussler said on Thursday.
”The current falls in the oil price and rand strength [or dollar weakness] are combining to give South Africans the biggest petrol and diesel price fall in percentage terms since November 1990. We expect the prices to fall with around 8,5% in January alone,” said Schussler.
He said current declines in oil prices and relative rand strength showed that the price of petrol should fall between 40 and 46 cents a litre in January.
A further fall of 10 cents a litre was expected in February. Schussler said the anticipated 41 cents per litre adjustment would be the greatest single nominal per-litre fall ever.
”This should leave the Gauteng petrol price at R4,25 and save the average motorist R80 per month on the January fall alone. Putting this saving in context, the fuel cost saving is equal to a fall of one percent in interest rates on a R100 000 outstanding mortgage,” he said.
Schussler said the chances of the petrol price declining to less than R4 a litre by March were at least 50% based on current oil price trends.
”Even Opec expects prices to be less than $35 dollars a barrel in the next few months,” Schussler said.
”This is important as just a month or so ago many commentators were expecting petrol prices to cross the psychological R5 per litre mark.”
Schussler also expected CPIX (consumer price inflation minus mortgages) to start the new year around 3,7% and head towards three percent by March 2005.
”The oil price drop has lowered our CPIX expectations from around four percent in January and 3,7% in March respectively. The decline in inflation should leave the door open to substantial cuts in interest rates by February,” explained the economist.
”This would pave the way for the prime rate to fall back into single figures. We now believe the chances of a 10% prime rate is now about 75%. Any further oil price falls will add to the 50% chance of a nine percent prime rate that the current fall in oil prices and weak dollar have brought us.” – Sapa