The Impact of Changes in Fuel Prices on Inflation and Economic Growth in South Africa

ABSTRACT: From a cost-push inflation point of view, the fuel energy sector plays a significant role in price stability and production costs. This sector has been volatile over the last decade, impacting on global economic stability. In South Africa, which is a fuel importer, fuel prices have been rising at an alarming rate of 21 percent since the beginning of 2018, causing inflation pressure within a low growth environment. The objective of this study was to analyse the impact of changes in fuel prices on inflation and economic growth in South Africa as a proxy for fuel importing developing countries. This study followed a quantitative research approach with time series data from 2001 to 2018. The impact of changes in the fuel price on inflation and economic growth were analysed by means of the Johansen cointegration and Granger causality econometric models. The results indicated both long and short-run relationships between the variables. The Granger causality tests indicated that causality is from changes in fuel prices to economic output and inflation. The results of the study could be used in monetary and fiscal policy, although not much control regarding the changes of the fuel price exists except for reduction in levies as a direct method of taxation.        

KEYWORDS: Economic growth, fuel prices, inflation, South Africa