Well, that isn’t good news. Especially with e-tolling getting closer. The projected hike next month would mean an increase of virtually 10 per cent on the current price, and would bring the cost of 95 octane in Gauteng to R11.84 a litre. Comparatively, the average price per litre in the UK is about R16.44.

In the States, the story isn’t much different.

There are a few main reasons for the potential hike, which are all interrelated.

First off, a 28 cent a litre rise in fuel levies was announced in the Budget earlier this year.

Secondly, a 22 per cent increase in Transnet’s pipeline tariff will also come into effect, which will add an estimated 4 cents to a litre.

Then there will also be a monthly adjustment to bring the domestic price of petrol in line with prices of a basket of international fuel products, in what is known as the underrecovery cost.

The average daily underrecovery cost was running at 29 cents a litre last week.

The Times of India explains the concept of underrecovery well:

Prices of petroleum products are fixed by adopting Import Parity Price. The logic behind the said calculation [of underrecovery] is that had there not been any oil refining companies in the country, all petroleum products should have been imported from foreign countries. Therefore, the citizens are liable to pay for petroleum products at the import rate.

Overall inflation has also had its part to pay, and for the past few years, one of the main sources of inflation has been the cost of supplying critical goods and services like fuel, electricity and food.

Reserve Bank governor, Gill Marcus, said in Johannesburg last week that demand side pressures were also beginning to take hold:

Most recent data suggest inflation is becoming more generalised and may reflect the emergence of demand pressures. Even moderate inflation is bad for the poor and for workers. An annual inflation rate of 10 per cent, for example, which is regarded by some as acceptable, means a worker receiving R1 000 a month will need to be earning R2 590 in 10 years time, simply to be no worse off.

A weak rand, and other international fuel pressures like the continued rise in the price of Brent Crude, also won’t help matters.

[Source: IOL]