Tag: price hikes

South Africa’s fuel price cap is on the way

Source: Supermarket & Retailer 

Energy minister, Jeff Radebe, has announced that the proposal to cap the price of 93 octane petrol will be finalised by the end of January 2019.

Speaking in a parliamentary Q&A session on Wednesday (31 October), Radebe said that the proposal has been circulated to the fuel wholesale and retail industries which have been asked to comment on it, reports BusinessDay,

“We are very serious about changing and putting a cap on 93 octane,” said Radebe.

He added that the cap would go a long way in alleviating pressure on consumers.

The confirmation comes after Radebe announced that Government was considering fixing a maximum price for unleaded fuel at the start of October.

“Government is deeply concerned by the rising cost of petrol in South Africa which is largely caused by the rand-dollar exchange rate and the price of crude oil,” said Radebe at the time.

He added that a task team, including officials from the Department of Energy and the National Treasury, are examining what to do to cushion the blow of another increase as the international price of crude oil has kept increasing.

Radebe placed a hold on petrol price increases for the month of September, with only a five cents increase added as part of an ongoing wage agreement.

However, this was followed by a record increase in October as the price of 93 octane fuel increased by 99 cents per litre, while 95 octane was increased by another R1 at the pumps.

November is expected to provide a slight relief for owners of petrol vehicles, while the price of diesel is expected to see another large increase.

SA consumers under the cosh

From today, consumers will pay more for fuel and should brace themselves for further increases including meat prices by the end of the year, say experts.

The price of petrol will increase by 44 cents a litre and diesel by 22 cents.

Gwarega Mangozhe, chief executive at the Consumer Goods Council of SA, says the higher price of fuel, which is directly linked to the weakening of the rand against the dollar, will inevitably impact on disposable household incomes which are already under pressure from other cost increases.

“Consumer spending is subdued and some of our members have noticed a change in shopping habits as consumers search for bargains, while some are prioritising their overall spend on groceries in light of tighter disposable incomes.

“While we remain confident that many of our members will experience a fairly busy festive trading season, the overall outlook remains uncertain given the predicted low economic growth during 2016.”

Momentum economist Sanisha Packirisamy, says the 43c/l under recovery in the price of petrol last month was largely a function of a 1.7 percent depreciation in the rand against the dollar between August and September and a 0.4 percent uptick in average monthly international oil prices over the same period.

Packirisamy says the Organisation of the Petroleum Exporting Countries (Opec) caused a 7 percent rise in international oil prices late in the month owing to a largely unexpected agreement by Opec to cut production levels.

“If oil prices persist at these levels there could be a further increase in petrol prices next month, should the rand stay at similar levels as well.”

She added the rand was also under pressure from heightened fears around a sovereign rating downgrade by Standard and Poor’s rating agency in December on the back of weak growth fundamentals and persistent policy incoherence.

“In our view, the expected rise in petrol prices still leaves the year-on-year inflation rate in private transport costs in the Stats SA consumer basket at reasonably low levels.”

Standard Bank economist Kim Silberman says the outlook for the remainder of the year was for the petrol price to continue to rise, which will add pressure to consumers’ disposable income.

Silberman says consumers spent on average 5.7 percent of their income directly on petrol, which added pressure to consumers’ disposable income.

“However, the effects of the fuel price are far broader than that and will most likely feed through to the price of public transport and the general cost of producing goods and services.

“We expect meat price inflation to accelerate in December.”

Neil Roets, chief executive of debt management firm Debt Rescue, says he expected further increases in the price of fuel towards the end of the year.

“The ongoing political bickering within the ANC and an extremely sluggish economy is likely to impact on the rand and it looks as if the price of crude oil may also be on the rise.”

Roets says one of the major effects of the fuel price increase on the economy would be the continued rise in the price of food.

“The announcement by the Red Meat Producers Association that the red meat price could increase by as much as R8 per/kg in the short term and that it could take between three to five years to restore herds following the severe drought, is bad news for consumers who are dependent on meat for their daily survival.”

Roets says the real elephant in the room was the expected downgrade by the ratings agencies later in the year.

“Despite all the efforts by the government to persuade the agencies that the economy was on the mend, they are not buying into the narrative and the reasons are clear: widespread corruption and parastatals like Eskom and SAA that are burning through taxpayers’ money at an alarming rate.”

Damon Sivitilli, head of marketing at city debt management firm DebtBusters, says the price of fuel increasing put more pressure on the already strained budgets of many consumers.

He says not only would the fuel hike and the resulting increasing cost of commodities choke consumers, it would also have a huge impact on small businesses across the country.

Sivitilli advised consumers to start reviewing their budgets by looking at their needs and adjusting their spending on luxuries in order to survive the economic and political turmoil.

“The repo rate went unchanged last month due to stable inflation rates, but the upcoming increase in petrol costs may put pressure on this once again and continue the trend of rising inflation and costs into the new year.”

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