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Fuel price could go up by close to R1 per litre

Cape Town - Consumers can expect a petrol price increase of about 90 cents a litre next month, which will bring it to more than R11 per litre, according to economist Dawie Roodt of the Efficient Group.

The department of energy will announce the fuel price adjustments for March on Friday.

"It sounded too good to be true: A huge fall in the price of petrol after the international price for oil collapsed. And it was too good to be true," Roodt told Fin24.

"After the oil price fell to below $50 a barrel, the petrol price was once again adjusted downwards. However, the oil price soon started to rise again and percentagewise a $10 increase at these levels is quite large."

Additionally, Finance Minister Nhlanhla Nene "couldn’t allow such easy pickings to pass his tax net" according to Roodt and he announced another 81 cents to a litre in his budget speech. This will become effective on April 1.

"Suddenly the petrol price is not that far off from last year’s highs and other price increases will become effective as usual this time of year," cautioned Roodt.

"In the meantime the economy is under pressure and wage increases are likely to disappoint this year. Expect the average consumer to experience another tough year."

READ: Motorists to cough up R17bn extra as Nene milks fuel levy

Bakang Moeketsi, national director of the SA Petroleum Retailers' Association (Sapra) told Fin24 projections are that petrol will increase by around 96c per litre and diesel by 74c per litre.

Although the impact of Nene's increase of the fuel levy is only effective as from April, she cautioned that, if SA continues to have an under recovery for the period, there might be even more increases to fuel prices.

Jana van Deventer, an economist with ETM Analytics, told Fin24 double-digit fuel deflation will persist in March despite prospects for a notable price hike.

"The department of energy is scheduled to announce the fuel price adjustments for March on February 27 and it is, therefore, instructive to note that as of February 25, an under recovery of 94c per litre was realised on the basic fuel price, suggesting fuel prices will increase by rather close to R1 next week," said Van Deventer.

She explained that a notable under recovery in the basic fuel price is the result of an increase of a nearly 15% in the rand price of Brent crude since the end of January.

"Nonetheless, even if a roughly 94c per litre increase in the price of 95 Reef petrol occurs, fuel prices will remain in double-digit deflation, as it will still be 21.4% lower on a year-on-year basis," said Van Deventer.

"Such a substantial annual deflation rate essentially means that fuel prices will continue to detract from headline CPI and help keep the annual inflation rate comfortably within the SA Reserve Bank’s 3% to 6% target band."

In terms of Nene’s announcement of an 80.5c per litre increase in fuel taxes, effective April 1, it is, in Van Deventer's view, likely to compound topside pressure on fuel prices in the short term as a gradual increase off multi-year lows occur.

"Although consumers are set to pay more for fuel in coming months, it will still be much cheaper compared to a year earlier and should continue to provide marginal reprieve to tight household budgets, especially in the event that we start seeing some second round effects," she said.

READ: Some taxes, fuel, electricity levies to rise

Economist Mike Schussler of economists.co.za expects 93 octane to go up by 91c per litre next Wednesday to take the price from R10.09 to R11.

He pointed out that it would be the first increase in about six months.

"But the worry is April 2015," he told Fin24.

"We know that the RAF and fuel tax levy are to go up 80.5c and we think oil prices would lift it a further 25c to 30c. This means we go back to R12.10 a litre in April. This will still be far below last year's price of R13.98 So we will still be about R2 less than a year ago."

That means inflation will still be lower than last year, and this is not as low as some expected it to be.

"Of R570 per month in savings about R280 will be gone between February and April. It seems that the RAF has a big final hole in it and needs the extra 50 cents or about R11bn to close some gaps," said Schussler.

"I doubt that will be the last increase for the RAF, but hopefully they can at least catch up on some payments to injured people and hospitals. Better management of funds here is also key or we could get another nasty here in a few years' time."

He suspects that the price of oil will stay around $60 per barrel until the middle of the year, but after that it seems it is anyones guess.

"Most are talking about oil going down again, but the good days of a very low petrol price and the boost to this economy are over, although, of course the lower oil price will still help our current account with the rest of the world," said Schussler.

ALSO READ: Nene should have been bolder - Cope

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