Share

Fuel price threat to inflation

Johannesburg - You are unlikely to pay a lot more for your living expenses this year, despite the large fuel price hike this week, economists have said.

But they warned that the rand, rising global food prices and administered prices posed a risk to the local inflation outlook.

This, however, may not cause prices to spiral out of control beyond the 3% to 6% Reserve Bank target range.

Investec economist Annabel Bishop said: “Should another one of the over-indebted advanced economies become bankrupt, particularly the very large economies of Spain or Italy, the heightened levels of international risk aversion could cause a sudden, sharp but prolonged weakening in the rand.”

Her warning was reiterated by Nedbank economist Isaac Matshego, who warned that if the rand dropped below R8 against the US dollar and the oil price went above $100 a barrel over a prolonged period, inflation could spring out of the target range. The rand has strengthened to about R6.72 against the dollar, the strongest it’s been in three years. The country’s targeted consumer price index (CPI) accelerated to 3.6% year-on-year last November after climbing to 3.4% in October.

But Bishop projected CPI to average 4.2% this year and 5.2% next year. Matshego forecast CPI to average 4.6% this year, but his projection would largely depend on the movement of the rand and food prices.

Chris Malekane, head of labour federation Cosatu’s policy unit, said that this week’s fuel price increase would slow down the rate at which inflation has been falling and might even dampen economic growth, which would curtail job creation.

Malekane warned that fuel prices would hike transport and production costs, thereby weakening the recovery of the SA economy.

“The fuel price increase is going to feed into the prices of other products like food. In my view, as long as the economy is in the doldrums, the Reserve Bank will keep interest rates unchanged for a while. The price hike has reduced the chances of further interest rate cuts by the Reserve Bank.”

The central bank’s monetary policy committee, which decides on interest rates, is expected to meet between January 18 and 20.

To underline the threat posed by rising oil prices, Fatih Birol, an International Energy Agency (IEA) economist, said oil prices have risen to dangerous levels that could derail a global economic recovery. Oil is trading at around $94 a barrel, close to the levels that partly triggered the global financial crisis. South Africa should beconcerned as its recovery was still fragile, she said.

Birol was quoted by the Financial Times as saying that oil producing countries should boost output to prevent a surge in prices.

Citing an IEA analysis, the Financial Times reported that over the past year the oil import costs for the 34 industrialised nations that make up the Organisation for Economic Co-operation and ¬Development (OECD) had risen by $200bn to $790bn at the end of last year.

The Financial Times reported that this increase in the oil import bill equals about 0.5% of OECD gross domestic product.

Matshego said that the petrol price increase would add 0.1% to January CPI figures. He said further that if the knock-on effects of the hike on transport and food costs were taken into account, the impact could be greater than 0.1%.

- City Press

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.98
-0.4%
Rand - Pound
24.00
-0.4%
Rand - Euro
20.51
-0.2%
Rand - Aus dollar
12.35
+0.0%
Rand - Yen
0.13
-0.4%
Platinum
903.65
+0.8%
Palladium
1,016.75
+1.5%
Gold
2,207.48
+0.6%
Silver
24.59
-0.2%
Brent Crude
86.09
-0.2%
Top 40
68,260
+0.9%
All Share
74,450
+0.7%
Resource 10
57,117
+2.6%
Industrial 25
103,835
+0.6%
Financial 15
16,488
-0.2%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders