Sunday Times

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

- By ASHA SPECKMAN speck­mana@sun­day­ Business · Finance · Stocks & Markets · Oil Prices · Consumer Goods · Financial Markets · Nedbank · First National City Bank of New York · United States of America · Iran · Jeff Radebe · The Automobile Association · The Automobile Association

● 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

 ??  ?? Peo­ple fill­ing up their tanks be­fore the price of petrol in­creases again.
Peo­ple fill­ing up their tanks be­fore the price of petrol in­creases again.
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