On Friday, 26 June 2015, the Department of Energy announced that the petrol price (95 ULP) will increase by 41c/l with effect from Wednesday, 1 July 2015. (93 ULP will rise by 44c/l). This means that the price of 95 Octane (ULP, Gauteng) will now cost R13.77 per litre, which is only 62c/l below the record high of R14.39/l in April 2014, and up R3.46/l since the low in February 2015. The price of diesel will increase by 4c/l (0.005%), while the price of paraffin will rise by 8c /l (retail price), and gas by 56c/kg.
The latest increase in the petrol price reflects a combination of the higher oil price and the weaker exchange rate. During the review period from 29 May 2015 to 25 June 2015, the average Rand/US Dollar exchange rate weakened to R12.32 compared to R11.95 during the previous period. The weaker Rand contributed 21.0c/l to the increase in the basic fuel price. In addition, the average oil price was somewhat higher last month, which added 20c/l to the petrol price increase.
The petrol price increase in July 2015 will have a significant impact on the inflation rate, pushing the monthly inflation rate by a further 0.2 percentage points. It will also further dent consumer spending and confidence. For example a 70 litre tank of petrol would have cost R722 to fill in February 2015. This has now increased to R994, a rise of R242 per tank. Assuming someone fills their petrol tank twice a month, the monthly cost would be an additional R484, which is fairly substantial relative to most people’s monthly income. Unfortunately, the direct benefit of the lower petrol price, which fell by R4.02/l from September 2014 to February 2015, has now largely been eroded. Consequently, consumer spending is expected to slump further in the months ahead, aggravated by relatively large increases in electricity, water, and other administered prices.
Encouragingly, the daily under recovery on the petrol price on 25 June 2015 was only around 4c/l. This means that at this stage it is entirely possible that the petrol will decline by almost 40c/l in August 2015. Clearly, though a lot can happen to the exchange rate and oil price in a month.
Download the presentation slides
Please follow our regular economic updates on twitter @lingskevin