The all-time high price of gasoline will push up the prices of all goods, drive inflation up and financially harm consumers. With 95 octane petrol costing a whopping R21.60 per liter and as of today 93 octane R21.35, the future looks bleak for consumers who are already living on their paychecks from month to month.
Low-income consumers will also suffer the most because they are already unable to afford nutritious food, while they will also have to pay more for transport to work and school. The long-term impact on inflation will make even the middle class struggle financially as higher interest rates follow, just as everyone is beginning to recover from the financial aftereffects of the pandemic.
Prof. dr. Jannie Rossouw, visiting professor at Wits Business School, says the adverse effects of the increase in petrol prices are already being felt today, as it will immediately drive up inflation and transport costs.
He points out that areas like the Northern Cape, where goods have to be transported over vast areas, will be worse off because goods will cost more due to higher transportation costs. “We could already see what the increase in gasoline prices has done to prices over the past three months.”
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Other factors that can affect prices
Companies can also use the higher gasoline price to raise prices to make up for what they lost during the pandemic. Food prices may 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 in the price of petrol in the coming months? With the price of Brent crude rising over the past week as a result of the war, prices could still rise. Rossouw says that the price is mainly determined by two factors: the price of Brent oil and the exchange rate.
“I think the price of Brent oil will stabilize at around $100 a barrel and I also expect the rand to remain stable, but consumers should remember that now is not a good time to take on more debt as interest rates rise. is also expected to increase, so build up some reserves now.”
R25 per liter is not far away
According to the Central Energy Fund’s semi-annual gasoline price data, gasoline could rise to an unprecedented R25 per liter in the near term. “This is devastating news for consumers and will lead to financial ruin for many people,” warns Neil Roets, CEO of Debt Rescue.
“More fuel price hikes will inevitably hit every South African, given the country’s reliance on fuel for transportation, manufacturing and agriculture. Consumers have already been ravaged by a flurry of month-on-month fuel price hikes over the past year and are now facing the steepest to date. How should they deal with that?”
Roets is concerned that while Finance Minister Enoch Godongwana and Energy Minister Gwede Mantashe agreed that a review of all aspects of the fuel price is needed, the budget contained no concrete action plan.
Godongwana noted that a combination of regulatory changes could cut gasoline prices by 103.82 cents/litre, boosting GDP by 0.67 percentage points by 2028. While fuel taxes have not been increased, Roets says urgent action is needed now to address the financial collapse of households across the country.
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Higher cost of living = more debt
South Africa imports about 30% of its wheat from Ukraine and Russia and the war has brought prices to their highest levels since 2008. This means bread prices will rise, making it even more difficult for low-income consumers to to survive.
He warns that as it becomes more difficult 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 circle of debt.
Annabel Bishop, chief economist at Investec, also says higher oil prices will drive inflation significantly for South Africa. She attributes the brim’s strength to earlier in February because gasoline prices aren’t even higher.