S. Africa warns of food price hike following fuel price shocks

South Africa's consumers should prepare themselves for an increase in food and transport costs in addition to more fuel price shocks, a top economist warned in local daily here on Sunday.

Azar Jammine, an economist in Johannesburg, said businesses tended to pass the effects of the fuel price on to consumers, thus ensuring that inflation would rise and people would have to pay more for goods.

The economist was quoted by Sunday Independent as saying: " Prices do not come down when the price of oil drops, resulting in lower fuel costs, because so much of industry is in the hands of a few large companies."

The price of petrol will increase by 7 percent or 0.39 rand a liter on Wednesday, making the cost of a liter of fuel 6.12 rand ( 1.02 U.S. dollars).

Jammine said the global demand for oil, which saw the cost of a barrel of oil rise to 73 dollars, would remain volatile because of the heavy demand.

South Africans use 4,000 barrels of oil a day compared with the 88 million barrels used by the rest of the world. Last year motorists used more than 11 billion liters of petrol, indicating that the latest increase will result in consumers forking out an additional 350 million rand a month for fuel from Wednesday.

Jammine said that South Africans were not paying as much for fuel as Europeans were. "We should not get too afraid of paying 10 rand a liter for fuel .. most of Europe pays as much because levies make up three-quarters of the fuel price to dissuade people from using cars and to prevent pollution."

Goolam Ballim, senior economist at Standard Bank, said the price of oil was likely to remain high for some time, resulting in higher fuel costs over the next few months. "When the price of oil rises the rand appreciates, but the appreciation is not so big as to make a significant difference."

The positive outlook of the rand, however, was helping to offset effects of the rise in fuel costs. "The oil price increase far exceeds gains made by the rand, so we can look forward to more fuel price increases," Ballim said.

The price of fuel would eventually reach 10 rand a liter because of inflation, but not in the immediate future. "It is an extreme example. We won't get there for many years," he added.

Source: Xinhua