Wage Demands, Interest Rates Cited As Reasons For Possible Petrol Hike

PICTURE: IOL

JOHANNESBURG: Automobile Association (AA) has issued a strong warning about a possible hike in fuel prices to all-time high. 

It expects a petrol price hike of up to 85 cents per litre in June. The AA expects the diesel price to increase by 87 cents a litre. Illuminating paraffin will be 82 cents per litre more expensive.

Speaking to a Johannesburg-based Talk Radio, The Money Show Kevin Lings, Chief Economist at Stanlib Asset Management, warned shell-shocked South Africans on Thursday. 

According to Lings, the “5 cents, more or less, is caused by the higher oil price. The rest is caused by the exchange rate. We remain vulnerable to outflows.”

“Are we willing to reduce the fuel levy…? It’s hard to imagine that Government would be willing…Inflation right now is 4.5%… if it starts moving up, and it will… it’s something that has to be watched. The Reserve Bank will then probably hike interest rates,” he added. 

Meanwhile, according to Old Mutual Multi-Manager Dave Mohr, who notes that the increase will mean that June’s petrol inflation could therefore jump to 16% – on the back of a reported petrol price increase of 9% in April and March.

“We have no option but to import oil for fuel and have no control over the oil price,” explained Mohr.

“If the oil price surges, as it has in recent weeks, it has a direct impact on inflation since petrol is 4.5% of the CPI basket. However, the true impact of a jump in the oil price depends on whether companies push up their selling prices to compensate for the fact that their input costs have increased.”

“This is the ‘second round’ impact of an oil price increase and will determine how the Reserve Bank responds,” he said.

“If workers demand higher wages in response to the increase in the fuel prices, that would be a significant input cost for most companies that they will in turn attempt to pass on to their consumers.”

He added that this could also result in a ‘wage-price’ spiral.