The Department of Energy announced that the petrol price (95 ULP, Gauteng) will decline by 85c/l with effect from Wednesday, 4 July 2012. This follows a decline of 55c/l in June; helping to reverse the sharp rise in the petrol price (R1.61/l cumulative), over the four months from February 2012 to May 2012. The price of 93 octane is set to decline by 89c/l, diesel by around 62c/l, paraffin by 77c/l and gas by R1.13/kg. Amazingly, if the average Rand/Dollar exchange rate had not weakened during the month (from an average of R8.10 in
May to an average of R8.42 in June), the petrol price could have dropped by R1.07/l. Correspondingly, the drop in the petrol is almost entirely due to the lower international oil price (78c/l), although the Department of Energy did reduce the Slate Levy from 10.96c/l to 4.38c/l.
The reduction in the petrol price will help to subdue consumer inflation over the coming months. The July price decrease will reduce the July monthly consumer inflation rate by a very significant 0.3 percentage points. This follows a likely reduction of 0.2 percentage points in June as a result of the 55c/l petrol price reduction.
Correspondingly, SA consumer inflation is expected to fall to below 5.5%y/y within the next two months, fuelling speculation of a rate cut by the Reserve Bank, and encouraging the bond and listed property market. We still expect rates to remain on hold, but clearly a rate cut is possible if the economy loses significant momentum.
It is clear from the Q1 2012 Reserve Bank Quarterly Bulletin that consumer activity is losing momentum. This is understandable given the sharp rise in electricity, water, education, food and transport costs. Fortunately, food inflation has moderated from a high of 11%y/y in November 2011 to just over 6% currently, while the reduction in the petrol price (June and July) should help to slow the loss of momentum in consumer activity.
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