May petrol price hike will perpetuate the vicious cycle of poverty among SA consumers

South Africans are trapped in an economic downward cycle that is not of their own making, with each day bringing news of yet another cost of living hike to add to their misery.

News from the Department of Mineral Resources and Energy (DMRE) this past week, of a fourth-consecutive hike in the price of petrol, will hit motorists hard, especially in the context of the financial predicament most are facing.

Motorists will have to fork out an additional 37 cents a litre for 93 and 95 unleaded petrol, taking both grades up above the R25 mark again.

The only light at the end of the tunnel is the price of diesel that will decrease by between 30 and 36 cents a litre.

The DMRE said the oil prices were again the main culprit behind the under-recovery in petrol – while the rand depreciated against the US dollar during the period under review.

“The effect of the latest petrol price hike on South Africans will be very hard-hitting and multipronged,’’ Neil Roets, the CEO of Debt Rescue said.

“Not only will motorists and commuters now need to fork out more to get to work, school and other places of necessity, the latest petrol price increases are likely to keep inflation figures high, eliminating any hope of a drop in the repo rate in May or July – while the impact on food prices will be far-reaching. We are looking at a country-wide catastrophe-in-the-making.”

The fuel price hikes also have broader economic implications. Increased transport costs can lead to higher prices for goods and services across the board, as businesses pass on their increased operational costs to consumers.

The phenomenon, known as cost-push inflation, can contribute to the overall inflationary pressures within the economy, potentially prompting monetary policy responses such as interest rate adjustments.

Sentiment around interest rate cuts in South Africa have shifted, with traders erasing bets on monetary policy easing in South Africa this year.

Bartosz Sawicki, a market analyst at Fintech Conotoxia, said persistent price pressures would continue to support the SA Reserve Bank’s (SARB) hawkish stance, dashing hopes for interest rate cuts in 2024.

The SARB recently reaffirmed its battle to combat high inflation and will cut interest rates only when consumer price index inflation returns to around 4.5% year on year.

“This means that consumers have been largely taken out of the equation, when massive decisions such as repo rate adjustments are being made. Yet it is the working-class South African who is keeping the economy going through their now-reduced purchasing power – at his or her own financial peril – at this point,” Roets added.

Don Consultancy Group chief economist Chifi Mhango said personal consumption, which accounts for roughly 65% of gross domestic product (GDP), was seeing a declining picture due to the high debt levels among consumers, while their spending patterns were being depressed by the high cost of living.

He pointed to the International Monetary Fund’s latest World Economic Outlook Report slashing the 2024 GDP growth rate for South Africa, saying it painted a bad picture of the country’s ability to address its challenges, despite all the efforts the government had put in place.

Mhango, who has worked for ArcelorMittal South Africa, PetroSA and Nedbank, said that the government had to be more active in dealing with the structural challenges facing the country, such as its electricity, water and logistical infrastructure issues.

These are a part of the daily challenges of citizens across the country, of whom 30 million are living at or below the national upper poverty line of R1 558 a person a month.

“This paints a grim picture of a nation ready to crumble under the combined weight of relentless financial pressure and the daily reality of shortages in essentials like water and electricity,” Roets said.

“Sadly, it is the working-class citizen that is hardest hit, and families now face the impossible decision of spending money on nutritious food or paying for transport to get to work, school or college.

“My advice to those who cannot find their way out of the debt trap, is to seek help through debt review, where a registered debt counsellor can assist you to manage your financial predicament. It is never too early to ask for help.”

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