R20 a litre for petrol and rising food prices – bleak outlook for Christmas in South Africa

 ·27 Oct 2021

Food prices in South Africa are climbing – and households should expect that trend to continue for the rest of the year as rising fuel prices, more incidents of civil unrest, and festive season price hikes kick in.

This is according to the Pietermaritzburg Economic Justice and Dignity group (PMBEJD) which expects households to suffer a combination of economic blows before the close of the year.

The PMBEJD tracks and monitors the pricing of a basket of essential foods month-on-month, and works in low-income communities to gauge how they are surviving the economic turmoil in South Africa.

In the latest index, the average Household Food Basket increased by R98.08 (2.3%) month-on-month, and R400.83 (10.2%) year-on-year. In October 2021, the average Household Food Basket costs R4,317.56.

The rise in food prices in October is in line with predictions, the group said and is set to continue into 2022.

Along with pressures from the Covid-19 pandemic and national lockdown, households have also had to contend with mounting costs to non-food essentials, the group said.

The massive electricity tariff hike of ±14.59%, effected in June and July 2021, had to result in price hikes of goods and services down the line. These increases are now reflected in higher food prices on supermarket shelves.

The difficult financial climate will likely worsen, it said, with higher fuel prices expected in November, rising oil prices internationally putting pressure on industries, and South Africa’s crumbling infrastructure making transport and freight even more costly.

Adding to the pain is growing civil unrest. South Africa is still reeling from the violent riots in July, with worries that similar events could take place again in the future. Truck drivers, meanwhile, have also begun to disrupt supply routes in recent weeks, protesting the influx of foreign workers.

The group highlighted these main factors that are expected to make surviving in South Africa even more expensive:

  • The higher electricity tariffs, including the additional costs of sourcing backup supplies amid load shedding, load reduction and blackouts, will increase the cost of production, transport, and storage.
  • The forthcoming fuel price increases in November will run through the value chains making agricultural production and transport more expensive.
  • The escalating crude oil price which is predicted to continue its surge will not only increase fuel prices but will increase the cost of many inputs into agriculture, processing, and packaging (crude oil is a core component in fertilizers and pesticides, plastics, and packaging). If the ZAR weakens, these costs will increase further.
  • South Africa’s railway system in many parts of the country is crumbling, and more of our goods and services are being transported by road, and therefore require fuel. Pressure on our highways will increase adding longer travel times on the road (this adds to the cost of fuel and cold storage, amongst others). The heavier traffic and heavier cargo further result in a deterioration of road surfaces and will require more maintenance, again a longer time on the road, including damage to vehicles.
  • More incidences of civil unrest and disruptions of major highways and logistics, in general, must be a factor in our future, given the upcoming elections, the period thereafter, and the general desperation and frustration of so many of our people.
  • We are moving into the festive season, where retailers typically hike their prices.

These issues are on top of and exacerbate continuing economic pressures in South Africa, including record-high unemployment, continued load shedding and widespread corruption in government.

R20 a litre for petrol

An expected petrol price increase for November is a catastrophic blow for already-stretched consumers, and the knock-on effects will be felt long after Christmas, warn finance experts.

According to Neil Roets, chief executive of Debt Rescue, the anticipated price hike will be felt all along the entire motoring industry supply chain.

“The AA recently said that South Africans can expect to pay up to 99 cents a litre more for petrol, while illuminating paraffin may rise by an eye-watering R1.42 a litre – the biggest increase ever.

“This means that motorists will be paying 30% more for petrol compared to the start of 2021. To make matters worse, motorists should not rule out paying R20 for a litre of petrol before the end of 2021,” he said.

“Consumers also need to contend with increases to the contentious slate levy, a self-adjusting mechanism that the government uses to deal with daily differences in petrol price. With rising fuel prices on the way, there could be another slate levy increase too.”

Interest rates

Adding to the problems, the Reserve Bank has taken a hawkish tone, suggesting that the country could see an interest rate hike as early as the next monetary policy meeting, in mid-November, said Roets.

Chief economist at the Efficient Group, Dawie Roodt, said that while the outlook for economic recovery remains intact, the forces driving global commodity price increases are unlikely to subside any time soon.

He added that it would be in the country’s best interests if the Reserve Bank hikes rates soon because the sooner it happens, the fewer hikes will be needed, and therefore the interest rate will remain relatively low.

“At the moment, international commodity prices are quite high, and there are a number of reasons for that, including certain bottlenecks globally because of economies moving out of lockdowns. This petrol price increase will also add additional upward pressure on the inflation rate in South Africa.”

However, it is important to note that international central banks have already started increasing interest rates. Many other central banks have indicated they will be raising rates soon, Roodt said.

“I do believe the bank will increase interest rates soon, and we expect about 25 to 50 basis points over the next six months or so. Even after these increases, interest rates will still be relatively low in South Africa.

“For now, clearly, there is upward pressure on inflation which means the Reserve Bank must increase interest rates, and the sooner they start doing that, the fewer interest rate increases will be required.”

Read: Food items South Africans are paying a lot more for right now

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