The projected increase in the price of petrol by 50 cents a litre and diesel by as much as 75 cents a litre is going to have a severe impact on deeply indebted consumers who are already battling to put food on the table.
Neil Roets, CEO of debt management firm Debt Rescue, said South Africans should prepare themselves for a slew of other price increases that are dependent on the diesel price.
“Virtually everything we consume is transported by road and we can expect commodities such as food to increase further still.
“There is no doubt that we are entering uncharted territory in terms of the full impact that the fuel price increases are going to have.”
Roets said the 50 cents a litre increase expected for the petrol price is going to hit motorists hard and depending on how the rand performs and the steady rise in the price of crude oil further increases were likely.
More unpleasant surprises may be on the horizon for the next few months.
Economist Dawie Roodt said the fuel price increase had been expected because of the erratic performance of the rand and the increase in the price of crude.
“I think the halcyon days of cheap crude are over and South African consumers would be well advised to tighten their belts even further to prepared for the price increases that will follow the present fuel price increase and further escalations down the road.”
Roets said government could help to alleviate the situation by lowering the fuel price levy that had been imposed following finance minister Pravin Gordhan’s budget speech.
“Motorists should not be seen as the government’s cash cow and a concession now would go a long way to bring some relief to consumers whose budgets had reached breaking point.
“We are on the eve of a perfect storm which is going to affect everybody but especially the poorest of the poor who spend more than 50% on food.”
The volatility in the currency remained a problem affecting the price of imports negatively.
“Every commodity we import from abroad has to be paid for in US dollars and that includes crude oil. As things stand at the moment there is a strong likelihood that the exchange rate may weaken and that the price of crude will keep rising,” Roets said.
“The food shortages caused by the severe drought earlier this year has worked its way through the economy and the prices of all food have risen substantially.
“We can expect further increases as the country is importing large amounts of food such as maize and wheat because our producing areas were particularly hard hit by the prolonged drought,” Roets said.
Roodt said one ray of light on the horizon was the fact that he believed the ratings agencies would wait until the end of the year before they downgrade South Africa’s bonds to junk status.
He was confident that the Reserve Bank would keep increasing the interest rate because of rising inflation.
“I would not be surprised if they increase it by as much as 125 basis points between now and December because inflation in general and food inflation in particular has become a long shadow hanging over the government,” Roodt said.
Roets said the fact that most consumers owed more than 75% of their monthly salary cheques to financial institutions showed just how dire the situation actually is.
He said his company was seeing a 40% increases in its growth rate largely because of the growing number of deeply indebted consumers who were seeking relief by going under debt review.
“Debt counselling remains the best way for consumers to manage their debt load by negotiating with creditors and paying off their debt in smaller instalments over a longer period of time.
“None of their assets may be attached by debt collectors while they are under debt review,” Roets said.