Deputy Finance Minister David Masondo has warned that with South Africa being a net importer of oil, the persistent conflict in Ukraine is having a severe impact on fuel prices which, in turn, is driving up food prices.
Participating in a Parliamentary debate that looked at the economic impact of the conflict on the South African economy, Masondo said there is the prospect of persistent supply and demand imbalances, which risks driving inflation higher and tightening financial market conditions.
“Since the conflict, there have already been sharp increases in the prices of crude oil, maize, wheat, and sunflower oil futures contracts. This is likely to persist until a resolution to the conflict is found,” he said.
The Deputy Minister said higher fuel and grain prices erode the disposable income of consumers.
He said this as local fuel prices recently went up to more than R21 per litre for the first time ever.
“This increase is due to the higher global price of crude oil, which over the last month alone, has increased to above $110 per barrel, compared to around $80 per barrel at the beginning of 2022.
“As a net importer of oil, South Africa, is unfortunately at the mercy of the global oil prices.”
National Treasury working with the Department oto review fuel pricing
Masondo said the National Treasury is fully aware of the impact of these rising prices on the quality of the lives and the cost of living of South Africans, especially the poor, who spend a disproportionate share of their income on transport and food.
“This makes the work that we have embarked on with the Department of Mineral Resources and Energy to review the approach to fuel pricing that much more urgent.
“We are working tirelessly to complete the work as soon as possible,” he said.
Masondo said, however, that government cannot make any hasty decisions, as any changes that are made on fuel pricing will have a lasting impact on the industry.
“In the meantime, we encourage those industries that qualify for the diesel rebate on the fuel and road accident fund to apply for it.
“The higher global inflation prospects could lead to higher interest rates, with tighter financial conditions and reduced capital flows to emerging markets.
“The adverse effects of developments in Ukraine have not spilled over to South Africa significantly, with the Rand having depreciated by only 1.3 percent in wake of the conflict.”
Masondo called for the silencing of the guns and a return to meaningful dialogue, negotiation and compromise.