Economists predict another modest cut to petrol and diesel prices in South Africa for February 2024. Although it is early in the month to make a definitive call, the potential reduction could bring much-needed relief to inflationary pressures, according to Annabel Bishop, chief economist at Investec.

Data from the Central Energy Fund suggests a possible cut of up to 12 cents per litre for petrol, while diesel is expected to see a more substantial reduction ranging between 50 to 60 cents per litre. If market conditions continue favoring these cuts throughout the month, it would mark the fourth consecutive decrease in fuel prices, offering significant respite to households and industries.

Fuel prices play a pivotal role in shaping South Africa’s inflation outcomes, and the substantial price cuts observed since November have already contributed to a decrease in inflation. November witnessed a noteworthy R1.78/litre reduction in petrol prices, pulling inflation down to 5.5% y/y from 5.9% y/y in October. December’s 64c/litre cut is expected to further contribute to lowering inflation to around 5.2% y/y.

The recent 76c/litre drop in petrol prices and a R1.18/litre reduction in diesel prices have been well-received, contributing to the positive trend. However, economists caution that conditions can change throughout the month, and a clearer picture will emerge around the middle of February.

Annabel Bishop highlighted the importance of a stronger rand, stating that it could lead to more substantial petrol price cuts and exert downward pressure on food price inflation and other commodity price inflation rates. Currently undervalued against the US dollar due to global and local sentiment issues, an improvement in the rand’s exchange rate would undoubtedly benefit the local economy.

PwC’s latest economic outlook for South Africa indicates that petrol and diesel prices have increased by 22% and 41%, respectively, over the last two years, impacting inflation. However, the firm expects stabilization in the pricing of international oil and the performance of the rand in 2024, resulting in less significant adjustments to fuel prices compared to previous years.

According to PwC’s projections, fuel prices are expected to be lower on average in the first three months of 2024 compared to the current quarter of 2023. Assuming current conditions, petrol prices are projected to average 0.6% higher in 2024, while diesel is expected to cost 0.6% less compared to 2023. These projections offer a glimmer of hope for consumers and industries grappling with the impact of rising fuel costs.