SA petrol price to decline by 18c/l in September. The decline is less than expected due to recent currency weakness that largely reflects renewed political turmoil

On Friday, 2 September 2016, the Department of Energy announced that the petrol price (95 and 93 ULP & LRP) will decrease by a modest 18c/l with effect from Wednesday, 7 September 2016. Earlier in the month there was an expectation that the petrol price could drop by as much as 50c/l. The latest announcement means that the price of 95 Octane (ULP, Gauteng) will now cost R12.17 per litre. The price of diesel will decrease by 48c/l (0.05% sulphur), while the price of paraffin will decline by 63c/l (retail price), and gas by 9c/kg.

During the latest fuel price review period, from 29 July 2016 to 01 September 2016, the average Rand/US Dollar exchange rate was R13.8016 compared to R14.4407 during the previous period. The strengthening of the Rand against the US Dollar during the month decreased the contribution to the Basic Fuels Price on petrol by 23.58 c/l. In contrast, the oil price moved slightly higher during the month, adding an average of 6c/l to the fuel price. The net effect is a decrease of 18c/l in the petrol price.

Worrying, the Rand exchange rate remains extremely volatile, but with a weakening bias. This suggests that the petrol could increase in the coming months. Clearly, though, a lot can happen to the exchange rate and oil price in a month.

The petrol price decrease in September 2016 will reduce the monthly consumer inflation rate by a very modest 0.1 percentage points, which will help to ease inflationary pressure and allow the Reserve Bank to leave interest rates unchanged for an extended period. Since the peak in April 2014, the petrol price has now declined by total of R2.22/l or 15.4%. Unfortunately, other cost pressures are still likely to push SA consumer inflation over 7% in late 2016, but at least the upcoming spike in inflation appears likely to be much more modest than what was envisaged in early 2016.

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