Diesel price drop welcomed, but grim petrol price outlook

THE ROAD Freight Association and a farming association have welcomed the diesel price decreases which came into effect this week.

The Department of Minerals and Energy announced that the price of 500ppm diesel came down by 73 cents per litre, while the 50ppm diesel dropped by 47 cents. Illuminating paraffin decreased by 33 cents per litre.

However, petrol prices increased by 37 cents per litre for both grades and experts at FNB have warned that consumers should prepare for more increases this year.

Gavin Kelly, CEO of the Road Freight Association, said that the diesel price decrease was welcome news.

Fuel Price Adjustment (May 2023): from Midnight tonight pic.twitter.com/zzrMHS5Ez1

— TrafficSA (@TrafficSA) May 2, 2023

“Every time there is a decrease in the price of fuel, one of the largest aspects of the operational cost of a freight company, which is the cost per kilometre to transport goods, reduces.”

Kelly added that this had a positive impact on the revenue streams for operations – allowing a better margin. “This will translate into lower retail transport and storage costs and will benefit the consumer.”

South African Farmers Development Association executive chairperson Dr Siyabonga Madlala said that any decrease in the diesel price was welcomed.

Madlala added that farmers had been facing other input costs.

“The farmers face many challenges with the rising cost of fertiliser, shipping costs and load shedding. As much as we appreciate the decrease of diesel, we also need to look at across the board decreases as farmers are crucial to the economy of South Africa.”

Financial experts Jalpa Bhoolia, investment analyst at FNB Wealth and Investments, and Koketso Mano, FNB senior economist, in a joint statement said they expected the petrol price to increase for the remainder of this year.

“We project the trend in petrol prices to worsen over the remainder of the year, even though prices should remain below post-lockdown highs and the volatility in international markets should keep the outlook fluid. The International Monetary Fund has marginally downgraded its growth projection for the global economy from 2.9% in January to 2.8% in the April World Economic Outlook. Nevertheless, global growth slowed from 3.4% in 2022, with the weakness being driven by advanced economies.”

The experts added that they expected the US Federal Reserve to hike interest rates leading to more pressure on emerging economies.

“The US Fed is expected to hike by another 25 basis points in May and the European Central Bank could go even further to rein in wage growth.

“Rising real rates in these advanced economies, while South Africa’s current account falls into deficit territory and local structural constraints mount, should continue to weigh on the rand and worsen local price pressures.”