THE rand fell to an eight-month low yesterday as the combination of lower commodity prices, the resumption of rotational power cuts and an unprecedented petrol price hike put the skids on the risk sentiment in the markets.
The domestic currency fell to R15.49 to the US dollar during the day, its lowest since March 8, as data confirmed that the standard of living was set to cost even more for consumers ahead of the festive season.
The Department of Mineral Resources and Energy (DMRE) announced on Monday night that the price of petrol (both 93 and 95 ULP and LRP) will increase by R1.21 a litre and diesel by R1.48 a litre from today.
The DMRE said this increase was driven up by record high Brent crude oil price due to rising demand and weak supply while the rand depreciated against the dollar. This means that petrol will rise from R18.33 per litre to R19.54 per litre in Gauteng/inland provinces, the highest it has ever been.
The price of 95 ULP in Polokwane is already testing the R20 a litre mark, with fuel there now costing R19.97 a litre.
The Automobile Association (AA) said a perfect storm of demand imbalances, refinery costs, natural gas price hikes and rand weakness would see the petrol price close in on R20 a litre in the run-up to Christmas.
“As we have said many times in the past, all the elements that comprise fuel must be fully interrogated to determine if they are necessary,” it said.
“Given that the fuel prices are now at record highs, such a review is overdue.”
Fuel prices have climbed by almost R5 since January when the price of petrol was just R14.86 a litre inland, an increase of 33.9 percent year-on-year.
The fuel price has a direct bearing on an already weak economy as it continues to drive up inflation on essential consumer goods and affects every South African.
Deal Leaders chief executive Andrew Bahlmann said millions of South Africans would possibly be unable to travel during the year-end holiday season as a soaring petrol price added further misery to their daily grind of battling rising food and electricity prices. “November’s fuel price increase will race through the value chains making agricultural production and transportation more expensive,” Bahlmann said.
“These increases are now reflected in higher food prices on supermarket shelves.” The rising prices could also prompt the South African Reserve Bank (SARB) to hike interest rates from 3.5 percent in its final Monetary Policy Committee meeting for the year at the end of November to curb inflation.
Inflation on consumer price edged higher for the fifth consecutive month in September, rising towards the top range of the SARB’s target range driven up by rising fuel prices.
Efficient Group chief economist Dawie Roodt said it would be in the country’s best interests if the Reserve Bank hiked rates soon.
Roodt said this petrol price increase will also add additional upward pressure on the inflation rate, but central banks internationally had already started increasing interest rates.
“I do believe the bank will increase interest rates soon, and we expect about 25 to 50 basis points over the next six months or so,” Roodt said.
“Even after these increases, interest rates will still be relatively low in South Africa. For now, clearly, there is upward pressure on inflation which means the Reserve Bank must increase interest rates and the sooner they start doing that the fewer interest rate increases will be required.”
BUSINESS REPORT ONLINE