May Petrol Price Increase Will Hit Consumers In Many Ways

The latest petrol price increase hits South African consumers in many ways. They are already trapped in an economic downward spiral not of their own making, with each day bringing news of yet another cost of living hike to add to their misery.

The May increase is the fourth consecutive hike in the price of petrol. Motorists will now have to fork out an additional 37 cents per litre for both 93 and 95 unleaded petrol, taking both grades up above the R25 mark again. The only light at the end of the tunnel is the price of diesel which will decrease by between 30 and 36 cents per litre.

The fuel price increases had a profound impact on South African consumers over the past few months in the form of increases in transport costs, with taxis, buses and other forms of public transport forced to introduce fare increases that were passed on to commuters.

The effect of the latest petrol price hike on South Africans will be very hard-hitting and multi-pronged, says Neil Roets, CEO of Debt Rescue.

Not only will motorists and commuters now need to fork out more to get to work, school and other places of necessity, the latest petrol price increases are likely to keep inflation figures high, eliminating any hope of a drop in the repo rate in May or July.

It will also affect food prices. We are looking at a country-wide catastrophe in the making, he warns.

The fuel price increases also have broader economic implications. Increased transport costs can lead to higher prices for goods and services across the board, as businesses pass on their increased operational costs to consumers.

This phenomenon, known as cost-push inflation, can contribute to the overall inflationary pressures within the economy, potentially prompting monetary policy responses, such as interest rate adjustments.

Sentiment around interest rate cuts in South Africa have already shifted, with economists erasing bets on monetary policy easing in South Africa at all this year.

Bartosz Sawicki, market analyst at Fintech Conotoxia, says that persistent price pressures will continue to support the South Africa Reserve Banks (Sarb) hawkish stance, dashing hopes for interest rate cuts in 2024. The Sarb recently reaffirmed its battle to combat high inflation and will only cut interest rates when inflation returns to around 4.5%.

This means that consumers have been largely taken out of the equation, when massive decisions such as repo rate adjustments are made. Yet it is the working class South African who is keeping the economy going through their now reduced purchasing power at their own financial peril at this point, Roets says.

Don Consultancy Group chief economist Chifi Mhango concurs, saying that personal consumption, which accounts for roughly 65% of gross domestic product (GDP), is seeing a declining picture due to the high debt levels among consumers, while their spending patterns are depressed by the high cost of living.

He points to the International Monetary Funds latest World Economic Outlook Report slashing the 2024 GDP growth rate for South Africa, saying it paints a bad picture of the countrys ability to address its challenges, despite all government efforts.

Mhango, who previously worked for ArcelorMittal South Africa, PetroSA and Nedbank, says that the South African government has to be more active in dealing with the structural challenges facing the country, such as its electricity, water and logistical infrastructure issues.

These are of course also part of the daily challenges of citizens across the country, of whom 30 million are living at or below the national upper poverty line of R1 558 per person per month.

This paints a grim picture of a nation ready to crumble under the combined weight of relentless financial pressure and the daily reality of shortages in essentials like water and electricity. Sadly, it is the working class citizen who is hit the hardest and families now face the impossible decision of spending money on nutritious food or paying for transport to get to work, school or college, Roets says.

South Africans are increasingly turning to credit to meet their daily food and transport costs, but banks have now started closing the taps due to consumers inability to repay their debts.

Credit analytics group Experian says the sustained high level of applications over the last quarter recorded in its latest Consumer Default Index suggests that consumers are seeking credit to cover their cost-of-living expenses. Experian notes that approval levels for credit remain low (31.1%), with over two-thirds of all applications rejected.

Although we wholeheartedly agree with the cautious