International fuel prices shot up by as much as 36 cents a litre in January, but were outshone by one of the strongest Rand performances in many months. As a result, South Africans can look forward to cheaper fuel prices in February. This is according to the an unaudited month-end fuel price data released by the Central Energy Fund.
International prices have risen by around 11 percent in a streak starting on 14 December 2017
Fortunately for South Africans, the Rand / US dollar exchange rate has enjoyed a strengthening trend for almost as long, with the local currency accelerating its gains since the middle of January. The stronger Rand means petrol is set to drop by 32 cents a litre at month end, with diesel down by 17 cents, and illuminating paraffin by 20 cents.
It is important for political leaders to note the strengthening effect the recent more hands-on governance approach has had on our exchange rate, reducing many input costs for both businesses and private citizens.
However, at the same time, we re-iterate our concern that government should avoid using the fuel levy to fund fiscal shortfalls, as it is a concentrated tax with rapid effects on inflation and disposable incomes.
Reviewing the fuel price history during 2017, the year saw some of the highest fuel prices in the country's history.
If one graphs the exchange rate, it is inescapable that almost all sudden movements are associated with political events. We appeal to government to take a more judicious approach to policy and governance in future, as Rand weakness affects poorer people disproportionately
2017 commenced with petrol at R12.85 a litre and diesel at R11.02, with a slight climb into March followed by a decline.
A reversal in fortunes came in May as the effects of previous Finance Minister Pravin Gordhan's dismissal filtered into the economy. Fuel prices nonetheless recovered, but once South Africa's sovereign credit rating was downgraded at mid-year, it was one-way traffic for fuel prices, with six straight months of increases.
December 2017 was notable for petrol reaching an all-time record high of R14.76 a litre.
The downgrade and subsequent fuel price peaks reversed a declining fuel price trend and caused sustained high fuel prices in a low-growth environment. Businesses, already under margin pressures, had little option but to pass on their increased fuel costs to consumers.
We call on government to commit itself to promoting policy and governance stability to bolster private sector confidence and foreign direct investment.