Whilst there are many factors that influence the market, the petrol price is one major indicator of the way things are, and the order of things to come. The weaker the rand, the higher the price: the higher the unit price (per litre) the more goods and services cost to collect and deliver, which means an increase cost of all products and services.
However, every few months we have been receiving a reprieve in the pump figures. As all the local news channels have been reporting, "Consumers are likely to breathe a sigh of relief, albeit temporarily, as the domestic petrol price is set to decrease next week."
"The implication for the man on the street is that despite a temporary reprieve from a decline in fuel prices, a weaker rand compromises the spending power of the consumer."
The first Wednesday in May will be the first petrol price drop after three consecutive increases totalling around R1.30 for a litre of 95 (prices differ from the coast to inland). In January this year, the price decreased by 15c a litre to R11.86, but has since risen to the region of R13.20/l.
The current expected decrease comes largely on the back of significantly lower global oil prices and a relatively range-bound rand over the last month, said Mohammad Nalla, head of strategic research: global markets at Nedbank Capital.
He said the price of Brent crude oil, the main benchmark for SA crude, has fallen by around 9% for the month to date. (April 24)
On the rand, he said movement has been volatile but largely flat. “The rand has been relatively range bound, within a wide depreciating channel, with upside and downside support and resistance between R8.85-R9.45/$.”
“The over/under recovery is based on average rate during the month, which implies that the brief period of recovery we saw in the rand during the month would certainly have contributed to the expected decline in the petrol price.
“This illustrates one dimension of why a weaker rand still poses a considerable upside risk to the inflation outlook, while the growth outlook remains tepid if not disappointing, with downside risks prevalent,” he said .
The implication for the man on the street is that despite a temporary reprieve from a decline in fuel prices, a weaker rand compromises the spending power of the consumer. This is already burdened by above-inflation increases in administered prices (electricity, fuel levies, municipal rates, etc) and a poor outlook for the jobs market.
“Higher inflation remains the bane of the man on the street as he is least equipped to hedge himself against the damaging impacts of inflation, resulting in a destabilising social dynamic which has manifested in pervasive and persistent labour unrest.
“This factor has a negative reinforcing effect on further rand weakness premised on the perception of deteriorating local fundamentals, a negative spiral which builds on itself,” Nalla said.
The likely outcome, according to Nalla, is that consumer spending power should remain under pressure during 2013, with the current projected fuel price decrease a welcome but transitory reprieve. He added that interest rates are likely to remain on hold for the remainder of the year and possibly well into next year, while the SA economy and consumer remain at the mercy of the vagaries of an errant rand.
Wiser spending is needed ahead with proper provision for emergency costs and health expenses. If you think you need to revise your current investment or risk insurance portfolio, go to my contact page and send me a message or email!