Bleak Christmas as consumers feel the pinch

Petrol price increase will have severe knock-on effect, economists predict

A BLACK Christmas awaits South Africans as today’s steep petrol price hike seeps into the rest of the economy, pushing up prices in almost every sector.

“We are most likely to experience a knock-on effect of this, such as inflation expected to go up. Ultimately this will have huge impact as we head into the festive period. Consumers are bound to feel the pinch,” economist Mike Schussler said. The last time motorists experienced a drop in the petrol price was in March. Since then, it has dramatically increased each month to a cumulative R3.

The price of diesel has also spiked over the past seven months. On Wednesday it will cost motorists almost R4 more for a litre, compared to the bill back in March.

“I believe we are going to experience more hikes and Christmas starts early when retailers start advertising promotions but the knock-on effect will be food increases that will bite consumers,” he said.

Economist Dawie Roodt said: “Without any doubt there will be more poverty as a result of this, and more unemployment. Because we have such a weak rand, we can expect less exports also.” He said low-income earners who relied heavily on public transport would also feel the pinch.

“We know our transport system is chaotic and what makes this situation bad is that we have no back-up plan. And low income earners already give around 20% of their salary to transport,” he said.

In September South Africa entered a technical recession, after Stats SA announced that the country’s real gross domestic product (GDP) had decreased by 0.7% in the second quarter of the year. A technical recession is two consecutive quarters of negative

growth. The first quarter’s GDP contraction has now also been revised upward to -2.6%. This is South Africa’s first recession since the 2008/2009 global financial crisis.

Soon after the economic data release, the rand piled on losses against the dollar, falling to a daily low of R15.23/$, down 2.4% on the day.

Chief executive of the Consumer Goods Council of South Africa (CGCSA), Gwarega Mangozhe, said: “Although our members in the retail and consumer goods sector have and continue to absorb input costs, it is becoming increasingly difficult to sustain these increases.” Mangozhe said smaller retailers would be worse affected because of margin pressure.

“We have noticed that shopping baskets have become smaller and many consumers have become bargain hunters as they opt for basics rather than solely luxury purchases,” he said.

Wesgro said it was concerned with what impact the fuel increase would have on importing and exporting. “It will cause exports to be less competitive as the cost of production will increase, and people may import cheaper alternatives as their cost of production is less and people have less disposable income to spend,” said Wesgro spokesperson Sarah Brownlee.

She said the retail sector was already facing tough times and Christmas, in particular, was their high season.

“The retail sector, in particular, may not see high growth as anticipated due to decreased disposable incomes and other recessionary behaviour.

“In an economy that is already facing a recession, these developments are likely to cause unnecessary strain on the everyday consumer,” she said.

But the tourism sector is expected to take a bigger knock.

“We are deeply concerned because the sector has already gone through a turbulent time and we are under severe pressure. The fuel increase means that all commodities will go up which means we are forced to find alternative measures to ensure we don’t burden tourists,” said Cape Town Tourism chief executive Enver Duminy.