South Africa: Fuel Prices Continue to New Record

UNCLAS SECTION 01 OF 02 PRETORIA 003620 SIPDIS STATE PLEASE PASS USGS USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND DOE FOR Thomas Sperl E.O. 12958: N/A TAGS: EPET ENRG ECON EIND SF SUBJECT: South Africa: Fuel Prices Continue to New Record Highs Summary -------------- ¶1. (U) On September 7, the Department of Minerals and Energy increased the prices of gasoline and kerosene to new all-time highs, and slightly decreased the price of diesel. All of the increase was caused by the higher international price of crude oil. A stronger rand in August (the rand strengthened by 3.5%) lessened the impact somewhat. Since March 2005, fuel prices have continued to increase to the point that they are now affecting inflation in South Africa. Although inflation remains well within the targeted range of 3-6%, the South African Reserve Bank (SARB) cited rising oil prices as a major inflationary threat, and decided not to lower the repurchase rate at its last Monetary Policy Committee meeting in mid-August as it otherwise might have. Rising oil prices caused producer and consumer inflation to substantially increase in July. End Summary. Government Announces Further Price Increases -------------- ¶2. (U) On September 7, the Department of Minerals and Energy (DME) increased the retail price of gasoline in rand terms by 5.1%, the wholesale price of kerosene by an average of 2.4%, and the wholesale price of diesel by just 0.03%, (2 rand cents). This was on top of August increases of 5.0% for retail gasoline, and 3.1% for wholesale kerosene, and 3.7% wholesale diesel. Since August, the rand had strengthened by 3.5%, but this was not enough to compensate for the rise in the international price of crude oil, which was entirely responsible for this month's price increases. The tables below show the increases in the average price of fuel in Johannesburg and components for the new price. Wholesale Johannesburg Prices (U.S. Dollars/Gallon) July Aug Sept %Change Gasoline - (retail) 2.99 3.16 3.45 +9.1 Diesel - 0.3% Sulfur 2.89 3.00 3.10 +3.2 Diesel - 0.05% Sulfur 3.02 3.13 3.23 +3.2 Kerosene 2.26 2.36 2.50 +6.0 Wholesale Johannesburg Prices (S.A. Rands/Liter) Gasoline - (retail) 5.35 5.62 5.91 +5.1 Diesel - 0.3% Sulfur 5.17 5.33 5.31 -0.3 Diesel - 0.05% Sulfur 5.40 5.57 5.54 -0.5 Kerosene 4.04 4.19 4.29 +2.4 SEVEN MONTHS OF RISING OIL PRICES FEEDS INFLATION -------------- -------------- ¶3. Since March 2005, fuel prices have continued to increase to the point that they are now affecting inflation in South Africa. Rising oil prices caused producer and consumer inflation to substantially increase in July. CPIX (inflation minus mortgage costs, used by the SARB to measure inflation) increased 4.2% in July, up from June's 3.5% increase. July's producer prices increased more than 50% above the previous month (when comparing year-on-year changes). Prices of petroleum and coal products more than doubled, and prices of agricultural products, paper, and basic metals rose in July as the downstream impact of seven months' of rising fuel prices began to filter through to the rest of the economy. ¶4. Although inflation remains well within the country's targeted inflation range of 3-6%, the SARB cited rising oil prices as an inflationary threat and elected to not lower its repurchase rate at its Monetary Policy Committee meeting in mid-August -- despite the country's persistent interest rate differential with major trading partners. Future crude oil price increases may well prevent the SARB from further reducing this differential. While a strong rand has helped mitigate some of the impact of higher oil prices, it has also resulted in higher costs for South African manufacturers who export, and muted the country's supply response to a growing world market for mineral commodities. TEITELBAUM