Petrol price could drop by R1 - expert | Fin24

Petrol price could drop by R1 - expert

Jan 21 2015 21:57
Carin Smith

Cape Town - The petrol price is falling so quickly that a further reduction of R1 may be on the cards, according to economist Mike Schüssler of

"About two weeks ago I thought it would drop another 25 cents, then about a week ago it looked like it would be a 50 cents drop. Now it is looking like a rand decline could become true," he said.

"That would be the second R1 decline and would bring the whole reduction to over R4 or a saving of R580 per month for the average motorist."

This will again boost consumer spending on other products and services, in his view.

"Notice how empty shops were just after Christmas as products sold more than expected. This would be close to 6% of formal sector disposable salaries - that is take-home pay after taxes and pensions, using BankservAfrica data," he explained.

"Consumers will take this as another good sign and if it was not for the power outages, I would estimate that this would have boosted the gross domestic product (GDP) by 2% to 2.5% by now. That is if it lasted for the whole year, off course."

The BankServAfrica Disposable Salary Index shows that typical disposable salaries are still just under R10 000 per month and the average just over R12 000.

In his view what is now needed is to "get Eskom going and get all politics out" of the power utility.

READ: Record 127c drop in petrol price

Saijil Singh, lead analyst of Coface, the international credit insurer, says their projections indicate another drop in petrol price is definitely on the cards, and a 50c reduction is a strong likelihood.

"There are various factors to consider here and the prevalent one is definitely the drop in oil price. We must be careful, however, to not ignore the reality of a very weak rand and gains in a dollar based commodity are not directly translated locally," he warned.

"Simply put, while the oil price has come down by more than 50% in the last six months, it does not mean that consumers will see a 50% fuel price reduction locally."

Another factor to note, he pointed out, is that Coface believes the current Brent price to be an overreaction due to weakening demand from the US.

"We are further predicting the price to normalise around the $75 mark in the latter part of 2015," he said.

"Overall, consumers should be getting some relief in the form on a fuel price cut locally, but consumer confidence is still very low and we should not expect this to immediately translate into an increase in retail spend."

In his view most consumers will be wary of a petrol price hike later in the year and cautious activity could definitely be expected.

ALSO READ: Petrol price drop could have sting in its tail

mike schussler  |  sa economy  |  oil  |  petrol price  |  rand


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