The conflict in Ukraine might be geographically far removed from South Africa, but its ripple effect might soon be felt by local consumers.

If the Russian invasion of Ukraine – described by some as the darkest hour for Europe since World War 2 – is not resolved quickly, South Africa could feel a squeeze from spikes in petrol prices, as well as earlier and bigger interest rate hikes by the South African Reserve Bank to curb inflation, and higher bread prices.

Furthermore, a lower demand for SA’s commodities and a “risk-off” attitude among investors towards emerging markets, could end up impacting the rand.

“All in all, it is not good for South Africa. Estimations used for SA’s national budget tabled on Wednesday did not consider a war in Ukraine, which could impact global growth and in turn that of SA, depending on how protracted the war ends up being,” says economist Thabi Leoka.

Fuel prices

On Thursday, the global oil price surged past $105 per barrel after Russia sent military forces into parts of Ukraine, increasing fears of a war in Eastern Europe. Russia is a key producer of crude oil and the market is nervous that oil supplies will be disrupted.

“Oil is South Africa‘s biggest import item, so the immediate impact on consumers’ pockets will be higher petrol prices,” says Maarten Ackerman, chief economist at Citadel Investment Services.

Before the latest oil price spike, the petrol price looked set for a hike of around R1.25 a litre in the first week of March. This would push the price of 95 octane petrol in Gauteng to a record high of above R21. 

However, the petrol price hike is now bound to be even steeper due to the latest oil run, as well as a sharp shock to the rand on Thursday. 

South Africa buys oil in dollars, and therefore the fuel price is also determined by the exchange rate. On Thursday, the rand weakened by almost 3% to R15.46. A week ago, it was trading below R15.

As a consolation, Johann van Tonder, economist and researcher at Momentum Insights, points out that at least the fuel levy was not increased in the national budget tabled on Wednesday.

Analyst Peter Attard Montalto of Intellidex, thinks there could be a R1.30/litre petrol price hike in March and maybe another 30c/l to 40c/l hike in April – despite the freeze on a fuel levy increase.

“Higher petrol clearly affects the poorest most and can force the share of poor households’ incomes spent on transport costs through the roof,” says Attard Montalto.

The rand

The Russian rouble crashed to a record low, and Leoka expects that the volatility in the Ukraine will have consequences for the rand.

“Like South Africa, both Russia and Ukraine are emerging markets, and typically investors move away from emerging markets when they are seen as riskier,” she explains.

In addition, the war could slow economic growth Read more here 

Original Source:  https://www.engineeringnews.co.za/article/from-bread-prices-to-petrol-how-a-war-in-ukraine-could-hit-sa-pockets-2022-02-25

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