Petrol, power price hikes hurt
Households are reeling after the fuel price hike, as electricity is set to go up by 15.06% in 2022
The latest fuel price increase not only means motorists will have to dig deeper into their pockets to keep their vehicles on the road, but has dire implications for everyone as it affects the cost of basic necessities such as food, clothing and commuting.
The department of mineral resources and energy published the official fuel price adjustments on 1 November, showing a substantial petrol price hike of R1.21 per litre, which came into effect on Wednesday.
The cost of diesel climbed R1.48 a litre, while illuminating paraffin, used for cooking and lighting by millions of South Africans who either have no access to or cannot afford electricity, jumped by R1.45 a litre.
The impact on the cost of living will be swift and painful, as it trickles down from businesses to households, said Phumlani Majozi, a macroeconomics research contributor and adviser at Greenmantle LLC.
“Businesses will transfer that cost to the consumer to be able to get it back. It will be transferred to the prices they charge and then life becomes expensive. That is why the cost of living is rising,” Majozi said.
“The person taking a taxi from Soweto to work will now pay more. The goods transportation will need to charge more as a response to increases in the petrol price. Even electricity prices have gone up so the cost of living is becoming higher which is also a problem because that represses economic productivity.”
The fuel price hike will also drive inflation higher, after the consumer price index climbed 5% on a year-onyear basis in September, accelerating from 4.9% in August and 4.6% in July, according to Statistics South Africa.
The Mail & Guardian previously reported that with inflation pressures mounting, the central bank — under its seemingly intractable governor Lesetja Kganyago — will likely soon begin the process of tightening monetary policy after slashing rates steeply last year to help revive an economy savaged by the Covid-19 pandemic.
The fuel price increase is the latest bad news for households after the National Energy Regulator of South Africa approved a 15.06% electricity tariff hike for 2022. The chief financial officer at state electricity utility Eskom, Calib Cassim, recently said a “cost-reflective” tariff, often used by the company’s bosses as a synonym for double-digit hikes, would be needed in the next few years.
“Our petrol prices and our electricity prices are way too high for this economy and those are structural flaws, it should not be this high,” said Erik Nel, chief investment officer of Terebinth Capital, noting also that the whole world was currently experiencing the effects of supply-side inflation, with costs increasing for the consumer as well as the producer as both struggled to recover from the pandemic. Supply-side inflation occurs when the cost of bringing goods and services to market rises.
The energy department attributed the increase in fuel prices to crude oil prices, which rose from $75.50 to $83.40 per barrel as a result of higher global demand amid a weaker supply response from producers.
Fuel prices are affected mainly by the rand/dollar exchange rate and charges to international petroleum product costs, primarily driven by oil prices.
The energy department said the rand depreciation, on average, against the US dollar led to higher contributions to the basic fuel prices of petrol, diesel and illuminating paraffin, by more than 15c per litre.
Fuel prices have increased by around 40% since January, with 95 unleaded petrol now costing R19.54 a litre in South Africa’s inland regions, from R14.86 at the start of the year.
In response to the latest rise, the Automobile Association (AA) said “a perfect storm of demand imbalances, refinery costs, natural gas price hikes and rand weakness would see the petrol price close in on R20 a litre in the run-up to Christmas”.
Both Majozi and Nel said a large chunk of the cost of fuel was attributable to government taxes and levies.
An additional increase of R2.20 per litre was implemented into the price structures of petrol and diesel as a slate levy, one of seven levies imposed on fuel for vehicles. Unlike the others, the slate levy does not go to the state but to the fuel companies.
The AA said it would continue to push for answers on how the levies incorporated into the fuel price were allocated and seek government clarification on the additional slate levy.
“It does not seem fair if you look at what the consumer is getting in return — potholes and structural failures,” Terebinth Capital’s Nel noted.
The litigious civil rights group Organisation Undoing Tax Abuse (Outa) is up in arms over the 126% increase in the various levies and taxes that South Africans have had to contend with over the past decade.
In November 2011, it noted, the combined cost of the general fuel levy, the Road Accident Fund levy and other levies amounted to R4.48 of each litre of 95 octane petrol, but this has now soared to R10.10.
“Outa maintains again, as it has on numerous occasions, that the state has pushed the envelope on fuel levy increases too far and should seriously consider pulling back on seeking additional tax revenue,” it said.
“Furthermore, the current fuel tax revenues on which the state relies — in particular the general fuel levy (around R88-billion per annum) and the RAF levy (around R45-billion) — will come under significant pressure over the coming decade, as the transition to electric vehicles becomes a reality.”
The state, Outa said, would be hard pressed to replace these revenue streams through other mechanisms and should seriously consider zero increases to fuel levies in the future, while exploring innovative ways to increase efficiency and reduce reliance on levies.