US embassy cable - 05PRETORIA3620

UNCLAS SECTION 01 OF 02 PRETORIA 003620 
 
SIPDIS 
 
STATE PLEASE PASS USGS 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
DOE FOR Thomas Sperl 
 
E.O. 12958: N/A 
TAGS: EPET, ENRG, ECON, EIND, SF 
SUBJECT: South Africa: Fuel Prices Continue to New Record 
Highs 
 
Summary 
------- 
 
1. (U) On September 7, the Department of Minerals and 
Energy increased the prices of gasoline and kerosene to 
new all-time highs, and slightly decreased the price of 
diesel.  All of the increase was caused by the higher 
international price of crude oil.  A stronger rand in 
August (the rand strengthened by 3.5%) lessened the 
impact somewhat.  Since March 2005, fuel prices have 
continued to increase to the point that they are now 
affecting inflation in South Africa.  Although inflation 
remains well within the targeted range of 3-6%, the South 
African Reserve Bank (SARB) cited rising oil prices as a 
major inflationary threat, and decided not to lower the 
repurchase rate at its last Monetary Policy Committee 
meeting in mid-August as it otherwise might have.  Rising 
oil prices caused producer and consumer inflation to 
substantially increase in July.  End Summary. 
 
Government Announces Further Price Increases 
-------------------------------------------- 
 
2. (U) On September 7, the Department of Minerals and 
Energy (DME) increased the retail price of gasoline in 
rand terms by 5.1%, the wholesale price of kerosene by an 
average of 2.4%, and the wholesale price of diesel by 
just 0.03%, (2 rand cents).  This was on top of August 
increases of 5.0% for retail gasoline, and 3.1% for 
wholesale kerosene, and 3.7% wholesale diesel.  Since 
August, the rand had strengthened by 3.5%, but this was 
not enough to compensate for the rise in the 
international price of crude oil, which was entirely 
responsible for this month's price increases.  The tables 
below show the increases in the average price of fuel in 
Johannesburg and components for the new price. 
 
           Wholesale Johannesburg Prices 
                (U.S. Dollars/Gallon) 
 
                        July   Aug    Sept   %Change 
Gasoline - (retail)     2.99   3.16   3.45     +9.1 
Diesel  - 0.3% Sulfur   2.89   3.00   3.10     +3.2 
Diesel  - 0.05% Sulfur  3.02   3.13   3.23     +3.2 
Kerosene                2.26   2.36   2.50     +6.0 
 
 
           Wholesale Johannesburg Prices 
                 (S.A. Rands/Liter) 
 
Gasoline - (retail)     5.35   5.62   5.91    +5.1 
Diesel  - 0.3% Sulfur   5.17   5.33   5.31    -0.3 
Diesel  - 0.05% Sulfur  5.40   5.57   5.54    -0.5 
Kerosene                4.04   4.19   4.29    +2.4 
 
SEVEN MONTHS OF RISING OIL PRICES FEEDS INFLATION 
--------------------------------------------- ---- 
 
3.  Since March 2005, fuel prices have continued to 
increase to the point that they are now affecting 
inflation in South Africa.  Rising oil prices caused 
producer and consumer inflation to substantially increase 
in July.  CPIX (inflation minus mortgage costs, used by 
the SARB to measure inflation) increased 4.2% in July, up 
from June's 3.5% increase.  July's producer prices 
increased more than 50% above the previous month (when 
comparing year-on-year changes).  Prices of petroleum and 
coal products more than doubled, and prices of 
agricultural products, paper, and basic metals rose in 
July as the downstream impact of seven months' of rising 
fuel prices began to filter through to the rest of the 
economy. 
 
4.  Although inflation remains well within the country's 
targeted inflation range of 3-6%, the SARB cited rising 
oil prices as an inflationary threat and elected to not 
lower its repurchase rate at its Monetary Policy 
Committee meeting in mid-August -- despite the country's 
persistent interest rate differential with major trading 
partners.  Future crude oil price increases may well 
prevent the SARB from further reducing this differential. 
While a strong rand has helped mitigate some of the 
impact of higher oil prices, it has also resulted in 
higher costs for South African manufacturers who export, 
and muted the country's supply response to a growing 
world market for mineral commodities. 
TEITELBAUM