Petrol industry association warns of steep fuel hikes unless government extends levy reprieve
It may be time to make a hasty trip to your nearest petrol station, because fuel is about to get more expensive than it has ever been before.
The latest petrol price increase of 39 cents per litre and 24 cents per litre of diesel, set to take place on Wednesday, will mean that 95 unleaded petrol in Gauteng will be just four cents short of R14 per litre for the first time in history.
"This will be a record price, there's no doubt about that," said Mike Schussler, an economist for economists.co.za. "If the rand remains weak, we will definitely break R14 per litre in the next two months."
Consumers have been feeling the pinch over the festive season, with per-litre prices rising by 39 cents in December and a further 17 cents in January before Friday's announcement of the latest hike.
Weak rand
The weak rand is one of two main factors contributing to price woes. Last week, the rand plummeted to fresh five-year lows at R11.38 to the US dollar, and was at a record low against the euro at R15.50. The fragility of the rand has offset any reprieve South Africans might have felt by a recent drop in the oil price, which is the other major factor that determines the price of fuel.
"We normally get our respite in February and March – then again in May and June," said Schussler. "Oil cost $113 a barrel one year ago and now [on Sunday] it's $106 so the petrol price is going down in other countries, but the rand has weakened so much that it is going up for us."
Although the petrol price is the most expensive to date for South Africa, historically it has increased in bigger single percentage leaps than the 39- and 35- cent jumps we've seen in recent months.
In 2009, the petrol price jumped by 23% between January and February. This year's jump between December and January was a little less than 3%. The increase that will take place on Wednesday will be another almost 3%. But while the increases have been comparatively small, it is the cumulative effect on the consumer that is taking its toll.
"This increase in and of itself is not catastrophic," said George Glynos, chief economist at ETM Analytics. "It's more that with all the increases that have passed in the year, and with the introduction of things like e-tolls, it's quite clear that incrementally they all take effect."
Consumers feel the burn
Some motorists are complaining that the steady increase of petrol prices over the last three years has forced them to make lifestyle changes.
"I now ride a scooter to see clients," said Bryan Banfield, a Cape Town-based entrepreneur.
Hyrum Solomon, a warehouse manager who commutes from Benoni to Johannesburg's west rand every day, has started relying on public transport. "I use the train – the regular Metro Rail – to get to work as petrol has become too expensive," he said.
And data shows that cash-strapped consumers are putting less fuel into their tanks. According to Bankserv Africa, which facilitates electronic transactions between banks, motorists spent an average of R489.70 every time they stopped at a service station in December. This was an increase of 3.9%, while the price of petrol increased by 9.8% in Gauteng.
On average, consumers bought about about 2.2 litres less fuel between service station stops this year compared to last. "That doesn't sound like much, but it's about a 5% decrease," said Schussler.
Dry festive season
Spending patterns over the festive season revealed a similar trend. "It seems as though South Africans had to sit and watch the world go by over the December festive season, as consumers spent a meagre 1.4% more on average per transaction at the tills year-on-year," said Bankserv in a statement.
This significantly undershot inflation, which was about 5.5% over the same period.
Cash withdrawals from ATMs increased by only 1.3% compared to December 2012, as did credit card transactions, said Bankserv. Debit card transactions also only increased by 1%.
"The BankservAfrica data also shows that the average trolley in the supermarket cost just over R400 in December, which was up by only 1.6% on 2012.
"This clearly indicates a cutting back by consumers, as this is about 4% below the inflation rate. Many department stores had a hard time with clothing, books and music sales which all grew average transaction values below the inflation rate."
Dry cleaners, barbers, jewellery stores and movie theatres all saw actual transaction values decline in nominal terms, the data collected by Bankserv shows.
"There's a lot of pressure on the average household. They are going to be feeling it in the first half of the year," said Glynos.
Not only have petrol prices been on the up, but electricity bills went up by 8% from last year, while utility bills increased by 3.5% between November and December alone, according to Bankserv.
Borrowing now more expensive
The Reserve Bank has also tightened monetary policy for those financing debt. Last Wednesday's announcement by Reserve Bank governor Gill Marcus followed other emerging markets into increasing the repo rate by 50 basis points to 5.5%, increasing the prime lending rate to 9% from 8.5%.
Marcus cited the weak rand and inflationary risks as the main reasons behind the decision. "The risks to the inflation forecast are seen to be significantly on the upside," she said.
"Large adjustments to the exchange rate will inevitably impact on inflation, even in conditions of relatively low pass-through such as we have been experiencing."
A 50 basis-point hike will have a muted effect on the cost of servicing debt. According to Jacques du Toit, a property analyst for Absa bank, the monthly payment on a R500 000 home will only increase by about R200.
But the increase will have a real psychological impact on consumers. "It will tell the consumer that the trend forwards is gradually upwards," said du Toit, making investors more cautious and first-time buyers more likely to hold off.
Light at the end of the tunnel
So when will consumers see some respite from this seemingly endless barrage of bad news? According to Glynos, next year should herald some relief, at least in the petrol price.
"We're in a difficult high-end cycle, but it doesn't stay that way forever," he said. "You'll feel some reprieve in the 2015 time frame."
Glynos said: "Weaker consumption growth is not an entirely bad thing – South Africa has a problem saving and enjoys spending more than it earns. [Monetary policy] tightening renders long-term growth and keeps excesses in check."
Schussler is not as definitive. "The rand has been so volatile that it's not the time to make too much of a bold forecast, but when the rand strengthens and stabilises, that's when the petrol price will too," he said. "And who can predict that? Perhaps the Easter Bunny or Father Christmas."