Fuel prices increase together with new fuel levy

By Staff Writer
by Jessica Wood, journalist, Justmoney.co.za

According to economists, April could see consumers paying almost R2 more for petrol.

In addition to the 80.5 cent fuel levy increase that is already on the cards, economists are speculating that we could see an additional R1 increase on top of that. This is due to the weakening Rand.

Currently South Africans are paying R11.27 a litre for unleaded fuel, whereas those on the cost are paying R10.86 a litre for unleaded fuel (see table below). But soon motorists could be paying much more.

FNB Economist Alex Smith told Justmoney: “Petrol prices are likely to rise by about R1.60 in early April due to a combination of higher fuel taxes and a weak Rand. Despite this increase, petrol prices in April will still be slightly lower than the average for last year.

“According to our estimates petrol inflation in April will be around -9% y/y, which implies that the petrol price will still be supportive of growth in consumer spending (albeit less so than before). This broadly applies to transport costs and the costs of other goods. In other words, even after the price increase, the petrol price itself is disinflationary when compared to its level from last year.”

Other economists appear to agree with Smith. Dawie Roodt, an economist at the Efficient Group, told Fin24: “Taxes and a higher road accident levy will add 81 cents to petrol, while a (mostly) weaker rand could add as much as a rand. In total petrol could, therefore, go up by as much as R2 per litre.”

Arthur Kamp, an economist at Sanlam Investments, said: “Next month’s petrol price increase is likely to be very large. For one thing it will include an additional 80.5 cents per litre for the increases in the fuel tax and the Road Accident Fund levy.

“Further, we know the average under-recovery on petrol for the month to 16th March 2015 was 94.548 cents per litre. But, because the oil price has been declining sharply the under-recovery on the 16th of March itself was lower at 55.388 cents per litre.”

Kamp added: “Should the under-recovery remain at its 16 March level through to the end of March 2015, then we estimate the April 2015 petrol price increase should be around R1.60 cents per litre. Note, however, changes in the Rand and oil prices through to end March 2015 could still cause adjustments to this estimate.”

According to a report, Dr Azar Jammine, chief economist and director at Econometrix, said that this will be the largest fuel increase in Rand terms that the country will have seen. But will there be more increases beyond April?

Smith revealed: “The outlook for petrol prices beyond April is difficult to call as it depends on the Rand and the oil price, both of which are very volatile. We expect that the average Rand/Dollar exchange rate will be slightly stronger than the spot level, while oil prices are expected to average slightly more than the current spot level. This suggests that petrol prices are likely to average close to the April level in 2015. However, significant volatility in the Rand and oil prices is expected and as such we could easily see further substantial upward or downward petrol price adjustments over the coming months.”

The official increase in the fuel price will be announced next week Friday, 27 March, by the Department of Energy.

The current fuel prices as of 4 March are as follows:
  Inland Coastal
Unleaded 93 R11.05 R10.81
Unleaded 95 R11.27 R10.86
LRP R11.05 R10.86
Diesel 50ppm R10.04 R9.73
Diesel 500ppm R10.00 R9.70
Source: FIllApp SA Fuel Alerts

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