National Treasury has revised its 2022 estimates for inflation owing to the war in Ukraine from 4.8%, which was the February projection, to between 5% and 5.5% - depending on how much the oil price rises over the year.
This is significantly lower than many economists, some of whom have estimated inflation for 2022 could average 5.9%.
Treasury estimates that motorists will on average pay R20.28 for a litre of fuel during 2022. The inland cost of a litre of 93 octane is R21.35. Treasury estimates, which are based on oil futures, assume that the elevated oil price will not last throughout the year and that it will peak in March and April and ease thereafter.
At a briefing to Parliament on the impact of Russia's invasion of Ukraine on the South African economy, the Treasury said that based on the crude oil futures curve, the oil price has risen 19%, taking inflation projections to 5%. If the crude oil price was to rise by 30% inflation would average 5.2%. A 40% increase would take inflation to 5.3% and a 50% rise to 5.5%.
Treasury official Clinton Joel told Parliament’s committee on mineral resources and energy:
"Under the three scenarios, headline inflation is anticipated to edge towards the upper bound of the Reserve Bank’s target range whilst it is estimated that consumers will pay R3.00 more for a litre of fuel, should the price of oil rise by 50% relative to the Budget Review forecast."
The SA Reserve Bank’s inflation targeting range is between 3% and 6% although the bank has unofficially targeted the mid-point of the band.
While rising wheat and oil prices and a potential weakening of the rand against the dollar will have upward impact on inflation, the rally in export commodity prices "would provide a tailwind to the external account, provide added support to the mining sector and a possible windfall to revenue collections", said Joel.
The Department of Mineral Resources and Energy, also briefing the committee, warned MPs that if the conflict in Ukraine continued beyond April, South Africa would run into supply problems and would have to consider fuel rationing.
Deputy director-general Tseliso Maqubela said this could involve rationing motorists to 50 litres per visit and calling on people to work from home where possible. Motorists were also encouraged to drive at lower speeds, for instance at 100km/h in a 120km/h zone.
"We are seeing evidence of decreased availability of certain products. There are indications of shortages of diesel [globally]. Diesel that had been flowing to Europe from Russia is so longer flowing at the same volumes with some being diverted towards the war effort in Russia… SA will be okay for March and April but if the war goes beyond that we will begin to experience security of supply issues," said Maqubela.
Makhubela said that the best way to cushion the economy against fuel price increases would be to provide support to public transport operators, such as taxis, and to food producers.