Rand price of oil has fallen nearly 15% since recent peak in May
CONSUMERS could benefit from the stronger rand with the price of fuel set to drop significantly next month. However, this could be offset by other inflationary costs, say experts.
Petrol is expected to drop by about 8 Oc/1 and diesel by about 5 Oc/1 next month.
Neil Roets, chief executive of debt management firm Debt Rescue, said although the decrease would bring some relief to consumers who depended on road transportation to convey most of the commodities they consume, including food, the state of the economy would offset the drop to some extent.
Roets said the short- to medium-term outlook for consumers looked increasingly gloomy, with the latest job figures showing there was a contraction taking place in the economy.
He said as long as the rand/dollar exchange rate held firm and the price of crude oil remained at current levels, there was a strong likelihood the reduced fuel price could bring welcome relief for the next two or three months.
“The economy is still feeling the pinch from the prolonged drought the country experienced and white maize still has to be imported at substantially higher prices than
the locally produced equivalent.”
Momentum Investment’s economist, SanishaPackirisamy, said the increase in the price of petrol in June of 52c/l led to a monthly 3.4 percent rise in private transport prices. However, owing to favourable base effects, the year-on-year rate remained low at 0.2 percent.
Packirisamy said the rand price of oil had fallen by nearly 15 percent since its recent peak at the end of May due to a fall in international oil prices and an appreciation in the local currency.
“The rand has strengthened in line with the recent rally in emerging market assets on expectations of further easing by monetary and fiscal authorities in key developed markets in response to Britain’s decision to exit the EU.
“We expect the private transport category to become a larger contributor to headline inflation in 2017 on the back of a depreciation in the local currency and a gradual uptick in international oil prices.”
Packirisamy said although the expected dip in private transport inflation should bring some temporary relief to the consumer, it was most likely to benefit the upper earning groups who spent a larger allocation of their budget on private transport costs, thus limiting the benefit for lower-income earners.
“With lower-income earners largely dependent on public transport, the benefit of lower petrol price may be felt less should the decline in petrol prices not be passed on in full.
MIXED FORTUNES: Economists say a drop in the price of oil and a stronger rand contributed to the predicted decrease in the petrol price next month. But they warn that lower-income earners may not feel the relief.
THE BENEFIT OF LOWER PRICE MAY BE FELT LESS IF NOT PASSED ON (IN PUBLIC TRANSPORT) IN FULL
“Moreover, elevated food inflation continues to erode real disposable income growth for this end of the income-earning spectrum.
“We expect core inflation to track slightly higher over upcoming months, but to remain below the upper band of the 3 percent to 6 percent inflation target band as muted domestic demand prevents a larger pass-through from rising input costs.”
Arthur Kamp, investment economist at Sanlam Investments, said the rand appreciation had been especially pronounced against the pound which had weakened sharply against the dollar, and the weakness of the pound reflected expectations that the adverse impact of Brexit was likely to be greatest for the UK, which ran a large current account deficit.
He said the rand had also appreciated against the dollar and the euro and, from a longer term perspective, had the potential to appreciate further against the dollar should the country contain inflation and implement the required economic reforms to lift economic growth.
“Given the typical volatility seen in the rand and oil prices, a petrol price decline in August may be followed by increases later. We just don’t know. Hence, transport businesses may simply opt to restore some margin.”