South Africa’s petrol price could jump by a record 23% in April, sending inflation soaring and shutting the door on an interest rate cut this year unless the government intervenes to cushion consumers from the full impact of the Middle East war on oil prices.
Inflation slowed to 3% in February from 3.5% in January, Stats SA said on Wednesday, helped largely by the postponed implementation of some new medical aid rates, putting it bang in line with the central bank’s new target.
But it is likely to accelerate sharply to about 4.5% by April as South Africans encounter the first of what could be several fuel price hikes this year if the US war against Iran is prolonged and keeps global prices elevated.
The government regulates and adjusts domestic fuel prices monthly, based on whether fuel importers are under- or overrecovering their procurement costs, which depends on international prices and the rand exchange rate.
“The average daily underrecovery for petrol is R4.74; that’s substantial, and for diesel it’s R7.72,” said Tertia Jacobs, treasury economist and fixed income analyst at Investec, referring to the latest estimates from the state-owned Central Energy Fund.
A R4.74 increase would translate to a 23.3% month-on-month jump for 95-grade unleaded petrol in the economic hub of Gauteng, the steepest margin yet.
Jacobs said the government initially stepped in to limit fuel price hikes for motorists in 2022 by releasing some of its reserves into the market after Russia’s invasion of Ukraine pushed global oil prices up sharply.
“The government sold some of its strategic oil reserves for R4.5bn and cut the fuel levy for two months, for April and May [2022]. But then it couldn’t continue in June, and we saw the hike coming through,” she told Business Day.
‘Limited oil reserves’
“The question is, can it do something now? What I understand is we have very limited oil reserves at the moment, so I’m not sure there’s any capacity to sell.”
Adding to the pain for consumers, especially those with debt, including mortgages, the volatility in oil markets and the implications for inflation have all but put paid to prospects for the South African Reserve Bank to cut interest rates this year, with some economists even seeing the chance of increases at the tail end of 2026.
The central bank’s monetary policy committee is expected to keep the benchmark repurchase rate at 6.75% at its second meeting of the year next week.
“We expected headline inflation to remain contained and close to the 3% target over much of this year. This would have materialised even with a normalisation in services inflation, as softer goods inflation would have been sufficient to counteract the upward pressure,” said Koketso Mano, a senior economist at FNB.
“However, the war in the Middle East poses upside risk. These risk events are likely to persist over the longer term, a reminder that continued political fracturing across the globe will sustain economic uncertainty.
“For a net importer of petroleum products such as South Africa, persistently elevated import costs will raise headline inflation above our baseline. This would initially show up in transport inflation, specifically fuel from April, before spreading to other costs. The monetary policy committee would be worried if they see this shock as less transitory and would want to limit second-round effects.”
A lack of relief on the interest rate front and more expensive goods on supermarket shelves due to the Middle East conflict will dampen retail sales after a strong start to the year.
Sales jumped by 4.2% year on year in January after a revised 2.5% increase in December, driven by a strong performance in the textiles, clothing, footwear and leather goods sector, and were up by 0.9% on a month-on-month basis after contracting 0.5% in December, Stats SA said.
The January gain suggests that households benefited from easing inflation during the month, when inflation slowed to 3.5% year on year, Standard Bank economist Shireen Darmalingam said.
But she also said: “Higher oil costs will lift transport and production costs, which retailers typically pass on to consumers through higher prices for goods, including food and everyday essentials.”
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