Higher Oil Prices & Weaker Rand: Should We Be Worried?


By Joburg Post

The steady and constant increases in international oil prices as well as the ongoing weakening of the rand exchange rate are worrying factors for most economists and policy makers. Already, over the past 12 months, fuel prices in South Africa increased alarmingly as the cost of diesel went up by 278 cents a litre, or 22.9 percent, and petrol by 237c a litre, or 17.2 percent.

This is the highest annual increase of the main items within the South African inflation basket. At this stage, it is expected that the fuel prices will increase by 55c a litre for petrol and by 5c a litre for diesel at the beginning of May.

During Friday, however, both these two alarming indicators started to improve remotely. After touching the R14.50/$ level earlier in the week the rand started to improve to R14.30/$ on Friday afternoon. In the same manner the price of Brent oil came down substantially on Friday from $74.70 (R1071.36) a barrel to $71.80 a barrel.



Should we be worried?

The steady increase in oil prices due to lower oil supply and the rise in the rand will place preasure on South African consumers, who will continue to feel the pinch with the higher cost of living. A weaker rand will increase the cost of imports and the higher cost of input goods will be be passed to consumers. 

However, a weaker rand will support export producers in a time wherer local demand remains weak.

The continetal free trade agreement may offer South African producers an opportunity to sell South African goods at more competitve rates. 

However, is South Africa doing well in promoting SMMEs to go out and do business with the rest of the continent? I for one am not sure if we have done enough to exploit the opportunities in Africa.

-JP

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