How rising fuel prices have emptied pockets
As oil heads for $100 a barrel, consumers are likely to spend R14bn more on fuel this year
● Motorists will face the harsh and inevitable consequences of last month’s fuelprice reprieve as a whammy of an increase is expected to kick in from midnight on Tuesday.
Energy Minister Jeff Radebe’s surprise intervention in August to offer relief to consumers, with a modest 5c rise in the petrol price instead of a 25c hike, has resulted in deferred pain for motorists this month. Radebe dipped into the slate levy fund to compensate fuel producers for the underrecovery in the fuel price last month but indicated that it was a one-off.
The Automobile Association (AA) estimated the increase in October could extract a further R2.5bn a month in transport costs from the economy.
“The cost of doing business will go up and consumer disposable income will shrink.”
The AA warned that the petrol price is expected to rise by R1.01 a litre, and diesel by R1.24, in October.
By late on Friday night the department of energy had not yet announced the increase.
Prior to any increase that may kick in this week, a litre of 95-octane unleaded petrol at inland pumps costs R16.08‚ while 93-octane unleaded fuel is at R15.86. A litre of diesel costs up to R14.45.
Reezwana Sumad, a strategy research analyst at Nedbank, said: “For 2019‚ we see petrol prices rising to at least R18.90 per litre if the rand remains weak and the Brent price remains above $75 per barrel.”
According to Absa estimates, South African households are likely to spend about R14bn more on petrol this year than last.
Miyelani Maluleke, an Absa economist, said fuel prices were weighing on real disposable income “in a big way, particularly if you consider that people have also had to fork out more for taxes”.
Real disposable income contracted by 1% in the second quarter, after growth of 0.9% in quarter one, the Reserve Bank said on Tuesday. This resulted in a contraction of 1.3% in household consumption expenditure in the second quarter, although economists are expecting a slight improvement in the second half of this year.
Gina Schoeman, economist at Citibank, said household spending would appear to be better as it was coming off a low base but the tangible effects may be difficult to discern in an economy that may grow only 0.8% this year. She said nominal income growth year on year was around 6%.
“That shows you that companies aren’t hiring and corporates aren’t able to pay bonuses and massive salary increases, notwithstanding the public sector. It’s the income side of the consumer that worries us most because we can’t see an obvious lever there [from consumer spending].”
Sumad said household credit extension had continued to rise despite the decline in real disposable income. This “could be a signal of distressed lending”.
Inflation was also rising although it was expected to remain within the Reserve Bank’s 3%-6% target range as consumer demand remained weak with currency fluctuations and the fuel prices expected to be the main drivers.
Schoeman said food inflation may surprise on the downside as listed food retailers have indicated they are unable to pass high increases on to constrained consumers.
The producer price inflation index, a gauge of inflation at the factory and farm gates, accelerated to 6.3% in August from 6.1% the previous month, according to data from Stats SA this week.
Fuel prices were hiked for the fourth consecutive month in July.
The consumer price index — a weighted average of prices of a basket of consumer goods and services — rose 4.6% in June and 5.1% in July but slowed to 4.9% in August.
The slowdown in June inflation was the result of a fall in rental inflation in that month. Rental inflation contributes about 20% to the inflation basket. “If it extends into the second half of this year that can pull inflation down quite a lot,” Schoeman said.
Maluleke said while higher fuel prices and currency weakness remained as inflationary risks, he was not expecting the 6% upper target to be breached any time soon.
Higher fuel prices are influenced by the pace of increase in international oil prices, which may reach $100 a barrel by the end of this year. Supply constraints are expected as the US reinstated sanctions on Iran, the world’s third-largest crude oil supplier.
Crude jumped to $82 a barrel this week, the highest in four years, with the impact on local fuel prices expected to be felt in November.
Companies aren’t hiring, corporates aren’t able to pay bonuses and massive salary increases
Gina Schoeman Citibank economist