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Expected fuel price drop to ease the pain

| Economic factors

The petrol price looks set to fall by about 50c/l next month, easing consumer pressures such as increasing food prices and higher interest rates.

The expected price drop is mainly the result of the rand having firmed slightly to below R16/$, along with continued weakness in oil prices, and stabilisation in demand and supply of oil. The fall in fuel prices will itself ease pressure on accelerating inflation, and could help support unchanged interest rates next month.

Soon after the announcement of Nhlanhla Nene’s sacking as finance minister on December 9, the rand hit R15/$.

It plunged to R16/$ by Friday, December 11, and tanked to beyond the R17/$ mark, albeit briefly. It has since recovered marginally and was at R15.78/$ on Monday.

Bidvest Bank head of treasury Ion de Vleeschauwer said on Monday: "The stars have aligned for a stronger start to the week for the rand with the US dollar speculative positions being reduced, the US rate outlook being dialled back, Asian stocks on the front foot and some key technical support being broken on the USD-ZAR."

The rand could even touch R15.60/$, he said.

The petrol price drop would be welcomed given expected tax increases. The government needs to raise taxes to close the gap between spending and revenue. Finance Minister Pravin Gordhan could announce an increase in personal income taxes, capital gains taxes, dividend taxes, value added taxes and fuel levies when he delivers his national budget next week, Old Mutual Investment Group senior economist Johann Els said.

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