South Africa: Anticipated Fuel Price Drop Could Be Short-Lived

Although an anticipated fuel and diesel price decrease will greatly help deeply indebted consumers, the relief might be only temporary, cautioned Debt Rescue CEO Neil Roets on Friday.

The fuel price is expected to go down by 49 cents a litre and the price of diesel by 70c/litre in August.

Earlier this week, the Automobile Association of SA (AA) said that in terms of current data it expects the petrol price to decrease by up to 49c/litre, the price of diesel by about 70c, and that of illuminating paraffin by 68c/litre.

  • The AA said encouraging mid-month fuel price data has been buoyed by receding international petroleum prices.

    While he welcomed the expected fuel price drop, Roets said consumers should be mindful that other economic indicators remain largely negative and they should understand that this is not a windfall that should encourage spending.

    “A decrease may be of a very temporary nature as the rand is taking a hammering, having decreased in value against the dollar by more than 10% since the beginning of the year. This past week alone it has dropped by more than 1.5%,” said Roets.

    “It is belt tightening time for the storm that might hit us later this year, as there is almost certainly going to be another interest rate hike. It is also a given that if the rand keeps trading at its current level, we are going to be looking at a substantial fuel price increase next month.”

    So far this year, the price of petrol went from R10.78/litre in January (for unleaded 93 at the coast) to R13.26 in July. The petrol price only decreased in February, and was unchanged in May from R12.35/litre in April.

    Diesel impact

    Regarding the expected diesel price drop, Roets pointed out that everything people consume is transported by trucks that guzzle vast amounts of diesel.

    “If retailers play the game and pass on the reduced transportation costs, we could be looking at a reduction in the price of food and most other goods,” said Roets.

    “It might even throw a lifeline to Eskom, which uses large amounts of diesel to keep its gas turbine generators going to help fill the shortfall of electricity in the grid.”

    Deeply indebted

    Consumers collectively owe about R1.6trn and more than half of all borrowers are three months or more in arrears with their bill payments.

    Any move in fuel prices, to be announced later on Friday, will take effect next Wednesday.

    Source: Fin24

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