Quantec news
Escalating oil prices: Heavy impact on inflation
March 7, 2008From the latest Statistics South Africa (StatsSA) producer price data, it is clear that the shock to consumer prices of petrol price hikes is far from over. What is more, the weighting for the sub-index for “products of petroleum and coal – imported commodities”, was revised from 1,3% to 2,2%, showing the increasing burden that producers have to carry in terms of energy costs in general.
But if anything, this sub-component of the PPI underestimates the impact that motorists and fleet owners are experiencing when filling up at the pump. The recent year-on-year rise (March 2008) for 93 Octane petrol has been 38,6%, while the rand cost per barrel of crude has risen by no less than 58,8% y/y. From current levels, the petrol price will rise by around 60c/litre for every $10/bl rise in the oil price, while an 80c drop in the value of the rand will have the same effect.
| Estimated price for 93 octane petrol (Reef - R/litre) | |||||
| Based on various exchange rate and oil price assumptions | |||||
| USD/ZAR rate | Brent crude ($ / barrel) | ||||
| 60 | 80 | 100 | 120 | 140 | |
| 6.00 | 5.44 | 6.33 | 7.22 | 8.11 | 9.00 |
| 6.50 | 5.66 | 6.63 | 7.59 | 8.56 | 9.52 |
| 7.00 | 5.89 | 6.92 | 7.96 | 9.00 | 10.04 |
| 7.50 | 6.11 | 7.22 | 8.33 | 9.45 | 10.56 |
| 8.00 | 6.33 | 7.52 | 8.71 | 9.89 | 11.08 |
| 8.50 | 6.55 | 7.82 | 9.08 | 10.34 | 11.60 |
| 9.00 | 6.78 | 8.11 | 9.45 | 10.78 | 12.12 |
It is interesting to note that crude oil prices are now roughly on par with their all-time high that was recorded since reliable data have been kept. In constant dollar terms (2006 prices), oil averaged $104,35 in 1864, while the 1979 oil shock took the oil price to $88,13. In nominal dollar terms (i.e. without adjusting for inflation), oil prices were only $8,06 in 1864 and $31,61 in 1979. In real terms, oil reached a low of $9,38/bl in 1970, implying that oil prices have experienced an average annual rate of increase of 6,4% over the past 38 years.
