The past month has seen international fuel prices surge by 36 cents a litre, but the increases were outweighed by one of the strongest rand performances in many months.
Commenting on unaudited month-end fuel price data released by the Central Energy Fund, the Automobile Association (AA) said that South Africans can expect cheaper fuels prices in February.
The AA said that since 14 December last year, international prices rose by 11 per cent.
“Fortunately for South Africans, the rand/US dollar exchange rate has enjoyed a strengthening trend for almost as long, with the local currency accelerating its gains since the middle of January,” said the AA.
The stronger rand means petrol is set to drop by 32 cents a litre at month end, with diesel down by 17 cents, and illuminating paraffin by 20 cents.
“It is important for political leaders to note the strengthening effect the recent more hands-on governance approach has had on our exchange rate, reducing many input costs for both businesses and private citizens,” the AA said.
However, the AA has restated their concern with the government using the fuel levy to fund fiscal shortfalls as it is a concentrated tax with rapid effects on inflation and disposable incomes.
Reviewing the fuel price history during 2017, the Association said the year saw some of the highest fuel prices in South Africa’s history.
“At the start of 2017, petrol was at R12.85 a litre and diesel at R11.02, with a slight climb into March followed by a decline. A reversal in fortunes came in May as the effects of previous finance minister, Pravin Gordhan’s dismissal filtered into the economy. Fuel prices nonetheless recovered, but once South Africa’s sovereign credit rating was downgraded at mid-year, it was one-way traffic for fuel prices, with six straight months of increases. December 2017 was notable for petrol reaching an all-time record high of R14.76 a litre,” the AA said.
The AA said that almost all sudden movements in the exchange rate are associated with political events. The AA also appealed to the government to take a more judicious approach to policy and governance in future, as rand weakness affects the poor disproportionately.
“The downgrade and subsequent fuel price peaks reversed a declining fuel price trend and caused sustained high fuel prices in a low-growth environment. Businesses, already under major pressure, had little option but to pass on their increased fuel costs to consumers,” said the AA.
The Association has called on the government to commit itself to promoting policy and governance stability to boost private sector confidence and foreign investment.
Talk to us by emailing our group editor, Daniella Potter, at [email protected]