The highest petrol price ever will increase prices of all goods, push up inflation and cause financial devastation for consumers. With 95 octane petrol costing a staggering R21.60 per litre and 93 octane R21.35 from today, the future looks bleak for consumers who already live on their salaries month-to-month.
Low-income consumers will also suffer the most as they can already not afford nutritious food, while they will also have to pay more for transport to work and school. The long-term impact on inflation will also see even the middle class battling financially as higher interest rates follow, just as everyone starts to recover from the financial after-effects of the pandemic.
Prof. Jannie Rossouw, visiting professor at the Wits Business School, says the adverse effects of the jump in the price of petrol are already being felt today as it will immediately push up inflation and transport costs.
He points out that areas such as the Northern Cape, where goods have to be transported over vast areas, will be worse off as goods will cost more due to increased transport costs. “We could already see what the increases in the petrol price has done to prices over the past three months.”
Other factors that can affect prices
Companies can also use the higher petrol price to increase prices to make up for what they lost during the pandemic. Food prices can also be affected by the war in Ukraine as oil seed and wheat exports are affected. Rossouw says shortages will lead to even higher price increases.
What about future increases for the petrol price in the next few months? With the price of Brent crude oil spiking in the past week due to the war, prices can still increase. Rossouw says the price is primarily determined by two factors: the price of Brent crude and the exchange rate.
“I think the price of Brent crude will stabilise at about $100 per barrel and I also expect the rand to remain stable, but consumers must remember that this is not a good time to make more debt as interest rates are also expected to increase. Rather build some reserves now.”
R25 per litre is not far off
According to the mid-month petrol price data from the Central Energy Fund, petrol could jump to an unprecedented R25 per litre in the near term. “This is shattering news for consumers and it will lead to financial ruin for many people,” warns Neil Roets, CEO of Debt Rescue.
“More increases in the fuel price will inevitably affect every South African, given how much the country relies on fuel for transport, manufacturing and agriculture. Consumers have already been pummelled with a volley of month-on-month fuel price increases over the past year and now face the steepest one yet. How are they expected to cope with this?”
Roets is concerned that although finance minister Enoch Godongwana and energy minister Gwede Mantashe agreed a review of all aspects of the fuel price is needed, the budget did not elaborate on an actual plan of action.
Godongwana noted that a combination of regulatory amendments can reduce the petrol price by 103.82 cents/litre, increasing GDP by 0.67 percentage points, by 2028. Although fuel levies were not increased, Roets says urgent action is needed right now to avoid the financial collapse of households across the country.
Higher cost of living = more debt
South Africa imports around 30% of its wheat from Ukraine and Russia and the war has now pushed prices to their highest levels since 2008. This means bread prices will increase making it even harder for low-income consumers to survive.
He warns that as it gets harder to meet living costs, consumers will rely more on their credit cards, which will only exacerbate their situation, as credit comes with steep interest rates. They will not be able to get out of this vicious cycle of debt.
Annabel Bishop, chief economist at Investec, also says higher oil prices will push up inflation substantially for South Africa. She credits the strength of the rand earlier in February for the petrol price not being even higher.
Read the whole article here: https://economy24.co.za/2022/03/highest-petrol-price-ever-means-looming-rises-in-food-prices-inflation/