Home

Tracking the fuel price

Reading Time: 3 minutes

At midnight the fuel prices rise to record levels. Depending of fuel type and grade, geographical location etc, the litre price of petroleum fuels will now generally exceed R16 a litre.

The increase in fuel prices comes at a time when consumers are burdened by a raft of recent prices and tax increases.  It is thus not surprising that the price increase has been met with protests like those organised by PaPPI (People Against Petrol, Paraffin Price Increase). Recently PaPPI threatened a nationwide shutdown should government not address their concerns about fuel prices.

The diagram below illustrates how the pump price of petrol has changed over the last decade. It shows that the nominal price of fuel has doubled since 2011. In January 2009 the price of fuel was a below R6 a litre.

However, the value of the rand has also deteriorated markedly since 2010. This means that a rand had far more purchasing power in 2011 or, indeed, any time before 2018. In other words prior to July 2018  every rand could buy more goods and services than they can at the moment.

If the purchasing power of the rand if factored into the fuel price then a different pattern emerges as to how the price of fuel has changed. For example, when measured in terms of current rand purchasing power then the “real’ price of petrol is lower than it was in 2014.

In the graphic below the pump price of petrol in indexed to 100 and shown by the dashed blue line. The ‘real’ price of petrol (i.e. the price adjusted for declining purchasing power) is shown by the solid red line. In several recent periods that line was above the current level (100) indicating that the price of fuel is not at a record high once inflation has been taken into consideration.

The cost of petroleum fuels like petrol, diesel and paraffin depends on several factors including the rand exchange rate, taxation levels, and the cost of crude oil.

In 2014 the cost of crude oil was approximately double its current price. Although that impacted negatively on pump prices in South Africa the impact was softened by a relatively strong rand on international markets. One US dollar then cost just over ten rand. At the moment one US$ costs over 13 rand. Imports of goods like crude oil generally cost 30 percent more than they did in 2014.

All this is bad news for South African consumers as the price of crude oil is now rising just as the value of the rand deteriorates on international markets. If this trend continues for even a few months the petrol price will reach record levels in both ‘real’ and in nominal terms.

 

 

 

Author

MOST READ