South African consumers will pay more at the pump for fuel in August than they did in July, but if it’s any consolation they are paying a lot less than they did at this time last year.  

The bottom line is that while the rand put in some gains in July, when it comes to the fuel price calculation, that was overshadowed by rising global oil prices.   

The Department of Mineral Resources and Energy (DMRE) announced the hikes on Monday. To wit, the petrol price rose by 37 cents per litre to R22.80 for inland regions while the diesel price jumped by 71c per litre to just over R20.50.  

Koketso Mano, senior economist at FNB, noted in a commentary that petrol prices are still 10% lower than they were this time last year, while diesel prices are 18% less. Inflation in South Africa is still slowing down. 

South Africa’s Consumer Price Index (CPI) braked significantly in the year to June to 5.4% from 6.3% in May. Pointedly, it fell within the central bank’s 3% to 6% target range for the first time in 14 months and was the lowest read since December 2021 when it was 4.5%.

Read more in Daily Maverick: At 5.4% in June, SA consumer inflation within Reserve Bank’s target range ahead of rate decision 

Still, price pressures remain in the global pipeline and the South African Reserve Bank will be mindful of this after it held its key repo rate steady in July, bringing a halt — for now — to a hiking cycle that had seen it raise rates by 475 basis points since late 2021, bringing the prime rate to 11.75%.  

“The concerning thing is that expectations that inflation will remain stubborn are evident in higher 2024 forecasts and this will likely result in interest rates being higher for longer and growth should be constrained related to the pre-pandemic period. This should weigh on oil demand, but producers have shown willingness to actively cut output to support prices,” FNB’s Mano noted. 

Brent crude prices, the global benchmark, were above $85 a barrel late on Tuesday, near three-month highs on expectations that supplies will remain tight as the Opec+ group of oil-producing nations is seen cutting output further.  

The silver lining is that bubbling crude prices are also a reflection of enhanced prospects for global economic growth. The International Monetary Fund (IMF) raised its forecast for global gross domestic product (GDP) expansion for 2023 to 3.0% from 2.8% previously, and such a revision is usually supportive of oil prices.

Read more in Daily Maverick: IMF revises its 2023 global economic growth forecast slightly upwards, including for SA 

South Africa’s economy is seen growing by a paltry 0.3% this year now in the IMF’s view, compared with 0.1% before. That underscores the point that domestic demand pressures are hardly fuelling domestic inflation.  

As is often the case in a vulnerable economy like South Africa’s, the brightening global outlook is a double-edged sword. Faster global growth can add some spark to a sputtering domestic engine by increasing foreign demand for South African commodities and other products, while adding cash to the wallets of tourists who might choose Cape Town or Kruger as holiday destinations. 

But such growth and tightening supplies may also keep oil prices on the boil and domestic inflation will feel the heat, meaning local interest rates will remain higher for longer.   

One of the forces behind global and domestic inflation has been Russia’s invasion of Ukraine, and the diplomatic fallout from Pretoria’s thinly veiled “neutral” stance on that conflict has not exactly been a winner for the economy or investor sentiment toward South Africa.  

As it happens, Russian President Vladimir Putin’s apparent no-show at this month’s BRICS Summit in South Africa is at least good news for the rand, according to the assessment of a number of analysts. That raises the prospect that the rand can hold on to some of its recent gains, though this week it has already surrendered some of them to trade at over 18.20/dollar from 17.88/dollar on Monday. 

Things would be even less bullish if a certain Russian bear was scheduled to pitch up here for the BRICS Summit, and that in turn would have heralded more pain than needed at the petrol pumps in September. DM