Sharp hike in fuel prices could see another repo rate hike - economist

Sharp hike in fuel prices could see another repo rate hike - economist

Econometrix chief economist Azar Jammine says the expected sharp rise in the price of fuel in October comes as no surprise given the high international crude oil prices. 

There will be an expected price in fuel to increase come June first week
Image: iStock

Brent crude, the international oil benchmark, rose above $95 a barrel on Tuesday, a 10-month high, continuing its march towards $100 a barrel.

Oil prices are rising because of mounting worries over a supply deficit following recent output cuts by Saudi Arabia and Russia, which have been extended until the end of this year.  

This has seen the latest unaudited mid-month data from the Central Energy Fund predicting an increase of R1.20 per litre for petrol and up to R2 per litre for diesel. 

Earlier this month, the price of both grades of petrol went up by R1.71 per litre, while diesel went up by R2.76 (0.05% sulphur) and R2.84 (0.005% sulphur) per litre. 

If the predictions prove to be accurate, South Africans will be paying over R25 for 95 Unleaded petrol at the coast and around R25.74 inland, where 93 Unleaded would rise to about R25.34. 

This will take South Africans back to fuel price levels last seen in July 2022. 

“There is a shortfall in the supply of oil relative to the demand,” said Jammine.

“This has been particularly acute in the production of diesel, but it also applies to petrol to a significant extent. The result is that we may be looking for increases in the region of R1 a litre for petrol and R2 a litre for diesel”.     

Jammine says these fuel price increases might cause the Reserve Bank’s Monetary Policy Committee to raise the repo rate further. 

An announcement on the repo rate is due on Thursday.

“Undoubtedly, the increase in the prices of petrol and diesel will result in the inflation rate rising more than previously anticipated, but that won’t be reflected in tomorrow’s (CPI) figures,” says Jammine.

“What will be reflected in tomorrow’s figures with the big increase in fuel prices that was seen at the beginning of August, but the September increases will only be manifested in next month’s CPI increase and then the month thereafter, the October increase will also be reflected.

“As a result, we are looking at the CPI inflation rate rising back closer to 6% over the next couple of months. One cannot rule out the possibility of the Reserve Bank raising the repo rate further.”


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