Fuel Prices Are Still Heading Up: Why the Rand’s Rebound Isn’t Enough
The rand has had a better start to the week, but it isn’t enough to change the outlook for November’s fuel price. According to Investec Chief Economist Annabel Bishop, another significant hike is still on the way, and it could push prices to yet another record high.
A stronger rand, but not strong enough
The rand has recovered to around R16.50/$, from R16.70/$ last week. That’s a step in the right direction, but it’s still well short of the R16.00/$ levels seen in early September, and further still from the R15.70/$ it hit before the US-Iran War.
Because of that, the exchange rate is now adding to the problem rather than easing it. In recent months, the rand/dollar rate had been offsetting some of the under-recovery on fuel prices. Now it’s adding about 50 cents per litre to the negatives.
Oil is the bigger problem
The oil price remains above $100 a barrel, reaching $106 on Monday, 12 October. That’s contributing to an under-recovery of about R2.50 on petrol.
There is one bit of good news. The under-recovery building for November has fallen from R4.60 per litre at the start of the month. Bishop said the recent rand gains have reduced the potential size of the hikes, but not enough to counter elevated international fuel prices. It has only dropped to around R3 per litre, which means a large increase is still coming.
Why this matters beyond the pump
Bishop pointed out that fuel price changes are key to South Africa’s inflation and interest rate outlook, as well as economic growth. Consumers are already under immense pressure, with fuel costs on track to double this year.
Little help from government
Don’t expect much relief from the state. Bishop noted that the 2026/27 tax revenue overrun is likely to be smaller than previously expected. Parliament is processing a bill to provide about R10 billion in fuel cost relief, with lawmakers demanding it be in place before December, but it’s not yet clear where that money will go.
Finance Minister Enoch Godongwana has said further fuel relief would come at a high cost to a budget the country can ill afford. He delivers his Medium Term Budget Policy Statement on 21 October. Bishop warned that fiscal figures could disappoint if spending continues to balloon, making extra fuel support highly unlikely. In her words, little government support is expected on a constrained budget, with fiscal consolidation still a priority.
A global oil shock that’s worsening
Globally, the oil shock has deepened, with inventories depleted, tanker costs high and fuel exports constrained. Tanker transport costs are at record highs, and insurance and other logistics costs have climbed steeply. Together with geopolitical tensions and inflation expectations, these are keeping fuel prices elevated.
Bishop expects these constraints to persist for some time, with elevated oil and petroleum prices now expected to last at least into next year. That will raise South Africa’s import costs and weigh on its trade balance and growth.
What it could mean for inflation, rates and growth
- Inflation: CPI inflation will likely be above 5.0% year-on-year when it enters the dry period from El Niño.
- Interest rates: The fuel “double whammy” could bring higher rates. Markets expect another hike in either November or January 2027, with rate cuts fading from forecasts.
- Growth: The Bloomberg consensus has trimmed South Africa’s GDP forecast for the year to 1.1% from 1.2%.
The bottom line
The rand’s recovery has softened the blow, but not enough to avoid a big increase in November. With oil above $100, little fiscal room for relief and logistics costs at record levels, motorists and households should brace for continued pressure into next year. If you can, plan your budget and your driving with higher fuel costs in mind.
Source: Investec commentary from Chief Economist Annabel Bishop, as reported in the original article.
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