Haydée Bangerezako speaks to economists about the fuel price.
What does a 70c increase in the petrol price mean?
Dennis Dykes, chief economist at Nedbank: In this particular month that it comes through, it will probably push inflation up by 0,6%. If the petrol price had not increased, inflation would have been 5,4% in the month of April, but now it is going to be 6%. That is negative for the Reserve Bank, as it might persuade them to raise interest rates, which is the direct impact.
Rejané Woodroffe, economist, analyst and asset manager at Metropolitan Asset Managers: It is a very large increase, one of the largest we’ve had, and it will impact on consumers directly. Interest rates will not change because of petrol prices; the pressures we’ve seen from inflation have come from food and fuel prices going up.
The only thing that should impact on a Reserve Bank decision is if consumer spending increases.
It hasn’t been the consumer’s fault that inflation has gone up. High petrol prices will have a dampening effect on consumer spending. If interest rates do go up, this would be a double whammy on the consumer, as we are already having 70c taken from the consumer. High fuel prices are already doing the Interest rate job.
Nazmeera Moola, director and head of institutional business at African Harvest Fund Managers: This means that the amount of money South Africans can spend on other goods will decline. They’ll be spending on average R70 a month more on petrol, an extra 12%. The money spent on discretionary goods will decline.
What are the knock-on effects going to be?
Dykes: When the fuel price increases, food prices go up and this fuel price increase will exacerbate this a bit. This will affect public transport, as taxi fares are likely to go up, and will indirectly cause an interest rate rise.
Woodroffe: It depends a lot on what the rand does. If the rand stabilises, we’ll see peak inflation around April, May, but that is assuming that the rand stays steady — the key factor. The rand should strengthen, but factors like problems in Zimbabwe and the presidential succession debate in South Africa have foreign investors concerned. It’s hard to say, but I expect the rand to trade at R7 to R6,80 to the dollar.
Technically, how does it add to one’s petrol bill?
Dykes: That depends on how big your tank is. Let’s say a tank carries 60 litres. It would be another R40 extra to the tank per week, which would lead to R160 in a month. Motorists can expect increases of between R100 and R200 per month.
How is this going to impact on the economy?
Dykes: Well, it’s going to impact negatively on the economy, because South Africa imports oil. It will adversely affect our trade account and, because consumers have less money, it could curb consumer spending. This tends to have a depressive effect on consumer spending because it takes money out of their pockets.
Woodroffe: I don’t think it will have a significant impact on the economy. One hike is not going to impact on the economy. You’d have to have series of hikes to have significant effects.
Moola: It will have a major impact. I don’t think the Reserve Bank is going to raise the interest rate. I don’t think the high fuel price will push inflation to 6%. It might if oil prices rise further, but not at current levels. If it looks like it’s going to reach 6%, we could see a rise in interest rates then.
How long is it going to last before it comes down?
Dykes: Oil prices have moved up because of tensions in Iran. I think it will pull back to some degree to mid-$60 per barrel. The rand has been fairly volatile, a bit weaker than we would have hoped.
We will have at least another month or two of high petrol prices and then in the second half of the year we might see some modest declines if the oil price eases back towards $60 a barrel. The short-term outlook, though, is still very negative.
Woodroffe: It’s very difficult to know, because the interaction between the dollar/rand price has been volatile and because of the geopolitical risks in the Middle East. We do expect that the international oil price will come down in the long term, but it obviously depends on the politics.
We expect that in five years the price of oil will be between $40 and $50 a barrel.
Moola: I would not know.