Blame Americans for the petrol price

Blame the Americans for this week's petrol price rise - and don't expect decreases any time soon, economists said this week.

On Wednesday, petrol pump prices in Gauteng will increase by 29c a litre to R10.25/l for 95 unleaded, breaching R10 for the first time since August 2008.

Petrol prices peaked in July 2008 at R10.70 a litre. This price increase will be the eighth consecutive monthly rise. In Gauteng, petrol will be R1.53/l more expensive than a year ago, and nearly 71% more expensive than in January 2009.

The wholesale price of diesel will increase by 1.7% to R9.64/l, while the maximum retail price for paraffin will rise by 20c to R9.60/l. The maximum inland retail price of liquefied petroleum gas will go up by 53c to R20.78 a kilogram.

The price of air tickets could increase by around 20% as the rand price of kerosene, used as jet fuel, has climbed by about 50% over the past year, said Mike Schüssler, chief economist at Economists.co.za.

"I think it's going to slow down growth in the domestic travel industry, but it won't stop it," he said. "It may have a big impact on international long-haul travel, however, where fuel prices play a much bigger role in ticket prices, and where price is an important factor when travellers decide on a holiday destination."

Another slowdown in global economic growth may also lead to a slowdown in international travel, which will negatively affect the airline industry.

Growth in South African tourist numbers may slow to single digits, from the low teens at present, said Schüssler.

Dawie Roodt, chief economist of Efficient Group, said the strength of the rand has helped contain the petrol price increase, which could have been as much as 45c. Should oil rise to $130 a barrel, the petrol price could go to R11/l, said Roodt.

On Friday, Brent crude was trading at around $124/barrel.

The oil price has a direct influence on the basic fuel price, which currently contributes about 55% of the price South Africans pay for petrol at the pump.

Nearly 30% is made up of levies and taxes, while the remainder is the profit margin and transport cost, according to the South African Petroleum Industry Association (Sapia).

Factors driving the strong oil price include the weakening dollar, relatively strong international demand for oil, particularly from China, but also from the US, where the economy is slowly starting to recover, and the political uncertainty in North Africa and the Middle East.

"It looks increasingly as if the political instability will spread further. If we see instability in Saudi Arabia, for example, the oil price can go anywhere," said Roodt.

According to Dennis Dykes, chief economist at Nedbank, the loose monetary policy, particularly in the US, which has led to a weakening dollar, is the "key driver" pushing up the speculative demand side, and therefore the price of oil.

The oil price is expected to remain "fairly strong" until June, when the US Federal Reserve is expected to start reducing its quantitative easing, said Dykes.

Nedbank is forecasting the oil price to settle at around $90-$110/barrel in the second half of the year. Investec is expecting a price of $120 by year-end, while Roodt is expecting $130.

However, a tightening in US monetary policy is likely to lead to a weakening of the rand, which could offset the impact of a decline in the oil price.

"We expect petrol prices to remain at similar levels; it shouldn't go much higher than we'll see next week," said Dykes.

The direct impact of a higher petrol price is that consumers have less discretionary spending money, "which is negative in itself", said Dykes.

The increase will also push up inflation more quickly, but Dykes said the Reserve Bank was unlikely to react as aggressively as in 2008, before the recession.

"I think the Reserve Bank has learnt a lesson; in 2008 they've tightened monetary policy way too much. Now, credit demand is low, but rising, but this is very much contained. I don't think the Reserve Bank needs to tighten as much (as in 2008)," said Dykes. Nedbank only expects the first increase in interest rates in January next year.

Roodt, however, said the Reserve Bank should act swiftly to contain inflation. "The longer they wait (to increase interest rates), the more they will have to increase it later. It's better to take the medication sooner, otherwise we might have to drink the whole bottle of castor oil," he said.

Annabel Bishop, group economist at Investec, said the persistent upward pressure on petrol prices was putting upward pressure on the cost of living. Combined with continued price increases for other services, such as electricity, living standards are eroded, unless similar wage increases are seen, said Bishop.