While South Africans are still reeling from this month's vicious hike at the fuel pumps, November could deliver another punishing blow
Could November fuel price increases deliver a knockout blow? Picture iStock
South African motorists could face an early festive season fuel price shock 60 days before Christmas. Early data now indicates a possible petrol price increase of around R4.60 per litre and a R2.60 per litre hike for diesel in November.
While South Africans are still reeling from this month’s vicious hike at the pump, current under-recovery figures suggest November could deliver another punishing blow. A fresh historic high could be making headlines then.
Investec chief economist Annabel Bishop said the latest data on imported international petroleum products currently indicated a petrol increase of R4.60 a litre. More than R4 of this increase was being driven by international prices, while about 50c was attributable to rand weakness.
If current conditions remain, the November petrol increase could be the largest hike so far this year. “The risk is clear, for South Africa currently very large transport cost increases are being signalled down the line again, with the price increases in October already having taken domestic fuel prices to historic highs,” Bishop said.
Could it become the largest hike yet?
The latest pressure follows substantial increases that came into effect on Wednesday. Petrol 93 increased by R3.12 a litre and petrol 95 by R3.33, while the two grades of diesel rose by between R2.84 and R3.24 a litre.
Bishop said diesel prices had nearly doubled this year, with another R2.60 a litre increase currently indicated for November. Official figures show inland wholesale diesel started the year at around R18.50 a litre and has now climbed to almost R33 a litre, before retail margins.
She warned that soaring diesel prices could place a heavy burden on producers and add further pressure to producer inflation, eventually filtering through to consumers. Bishop said a petrol increase of the magnitude currently indicated could also push consumer inflation above 5%.
Petrol has risen by around a third since January. Bishop said the scale of the potential November increase strengthened the case for government to intervene again by cutting the general fuel levy.
“A cut in the general fuel price levy is warranted again, in the face of the additional potential consumer stress,” she said.
Calls for government intervention
There have also been calls from political parties for government to urgently intervene.
Airlines may also be hard hit, with industry insiders warning that sustained high jet fuel prices could leave at least one casualty in South Africa and potentially more globally if oil prices do not retreat and the Middle East war continues.
The pressure is being driven largely by the international oil market. Oil has been trading around $100 a barrel, well above the approximately $65 level seen before the Middle East war this year. Disruptions to energy exports through the Strait of Hormuz, attacks on Saudi Arabian export capacity and damage to Russian energy infrastructure have contributed to higher and more volatile energy prices.
Bishop said elevated energy prices had persisted into the fourth quarter, with risks remaining on the upside. The international shock has also contributed to a risk-off environment in global financial markets, putting pressure on the rand and compounding South Africa’s fuel challenges. The consequences could also weigh on the Reserve Bank when its Monetary Policy Committee meets again in November.
Interest rate impact
Bishop said the Reserve Bank had so far taken a cautious approach to the oil shock, hiking interest rates by 25 basis points at alternative MPC meetings since May. Markets were already factoring in another 25 basis point increase in November, although the eventual fuel adjustment and its inflationary impact could play an important role in the decision.
There are still a few weeks left in October that may provide relief from the current scenario.
