Global Courant
While fuel prices are expected to rise in 2023, they will not reverse the overall drop in inflation.
According to Stats SA, consumer price inflation fell from 6.8% in May to 6.3% in April.
This was the lowest reading since the 5.9% recorded in April 2022.
One area that dropped significantly was fuel inflation, which fell from 5.0% in April to 3.5% in May.
South Africans have suffered skyrocketing fuel prices over the past year, with the Russian invasion of Ukraine sending fuel prices skyrocketing due to sanctions against the former.
The increase in fuel prices tends to increase inflation rates as households have to spend more to fill up their cars, while producers and companies are affected from a price perspective.
FNB Senior Economist Koketso Mano said fuel prices are likely to rise slightly in the remainder of 2023 – despite an expected minimal drop in gasoline prices in July.
While the rand rebounded strongly in June, Mano said the rand could fall further in the coming months, impacting fuel prices.
“The concern is that there are several near-term risk events that could weigh on the brink, such as the BRICS summit and the 2024 election. In addition, while the divestment was less intense in June, there are still risks that it will close after phase 6 could increase as winter progresses, she said.
“These risks should keep the rand undervalued for months to come, limiting the upside that could have been reflected in fuel prices.”
In addition, she said that international product prices could also rise during the year.
“However, an intensification of the current Northern Hemisphere car season and/or better news from China should support demand in the coming months, while some improvement in economic activity should support higher prices entering 2024,” she said.
While an increase in fuel prices will limit the slowdown in headline inflation, she does not expect it to reverse the trend of declining inflation.
“Headline inflation is also supported by positive base effects from the higher base created in 2022, when we started to see large increases in inflation following the supply chain disruptions following the pandemic and war in Ukraine. a faster annual slowdown as seen in the May 2023 inflation print,” she said.
“Furthermore, the relatively aggressive hiking cycle that has led to 475 basis points of interest rate hikes over the past year and a half should bear fruit, reduce demand, limit suppliers’ ability to weather cost pressures and support slowing growth. with inflation.”
Read: South African economy not in crisis: Reserve Bank
