Petrol price shock for South African motorists

 ·26 May 2024

The price of unleaded 93 petrol increased by 119% over the last four years, with similar increases for unleaded 95 petrol and diesel.

These significant fuel price increases have caused tremendous pain to South African motorists already struggling with high interest rates and rising food prices.

An analysis by BusinessTech revealed that the price for unleaded 93 petrol increased from R11.51 per litre in May 2020 to R25.15 in May 2024.

The price of unleaded 95 petrol increased from R12.22 in May 2020 to R25.49 in May 2024, while diesel increased from R11.19 per litre to R22.24 over the same period.

This means South Africans pay over 100% more for fuel now than they did four years ago. However, the price hikes do not only hurt motorists.

In South Africa, most products are carried by road. Transnet’s collapse aggravates the situation by pushing mining companies to use road freight instead of trains.

The higher petrol and diesel prices force logistics companies to increase their pricing to cover the rising costs.

The higher transport costs feed into the entire value chain as fuel is a universal economic input, potentially raising the cost base of all goods and services.

Road Freight Association (RFA) CEO Gavin Kelly said roughly 85% of all goods moved through and around the country are transported via road at some point.

Fuel contributes over 50% of the transport costs associated with road freight. Therefore, higher fuel prices translate into higher operational costs for transport companies.

The higher transport costs are passed on to consumers in the form of higher prices at the till. This applies to nearly all products, from food to electronics.

Higher product prices translate into higher inflation, eroding consumers’ salaries’ buying power.

Higher inflation also caused the South African Reserve Bank to increase interest rates, putting further pressure on consumers through higher debt repayments.

Higher inflation can also cause interest rates to stay higher for longer. South African Reserve Bank Governor Lesetja Kganyago said there would be no interest-rate cuts until inflation is brought under control.

“Rates are where they are because inflation is what it is,” Kganyago said in an interview with Bloomberg in Sao Paulo last month.

“The task of taming inflation is not yet done. Until that is done, I don’t see why there should be a change in the monetary stance.”

Higher petrol and diesel prices are, therefore, bad news for those looking for interest rate cuts in the short term.

The combination of high fuel prices, high inflation, and high interest rates is devastating for South African consumers who are struggling to make ends meet.

It raises the question of whether the government can intervene to lower fuel prices, helping struggling consumers and bolstering the economy.

However, this is not easy. The high petrol and diesel prices are linked to the international oil price, the rand’s exchange rate, and fuel taxes.

The government has little control over the oil price or the rand/US dollar exchange rate. Lowering fuel taxes will also be risky.

The fuel levy, an excise tax charged on petroleum products such as petrol, diesel, and biodiesel, is an important source of revenue for the government.

The fuel levy generated R93.37 billion in revenue in the 2023/24 financial year. It makes up around 5% of the government’s total tax revenue.

In the 2024 Budget, South African motorists were given some relief when the general fuel levy and the Road Accident Fund (RAF) levy were not increased.

However, this is about as much as the government can do without hurting tax revenue and creating an even bigger budget deficit.

Fuel price increases from May 2020 to May 2024

The charts below show the petrol and diesel price increases over the last four years.

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