Petrol price increase erodes what is left in consumers’ pockets
Consumers now pay R22.92 per litre for 93 unleaded petrol after the petrol price increase, up from the R22.17 they paid in January.
The latest petrol price increase erodes what little is left of South Africans’ disposable income and South Africa’s cost-of-living crisis today reached a new high, with the price of petrol up by 75 cents per litre.
The price of petrol is now inching to R25.00 per litre, taking us back to October last year when prices peaked at R25.86 per litre, a high not seen since July 2022 when petrol prices reached an all-time peak of R26.74 per litre.
The Automobile Association said the movement in international oil prices contributes a significant percentage to the increase, while the weaker average rand to US dollar exchange is adding an impactful, but smaller, margin.
Neil Roets, CEO of Debt Rescue, says with no end in sight for the volley of living cost increases aimed at them and with consumers already cutting back as much as they can, the latest petrol price increase will cut deeply into the little disposable income people still have left, making it almost impossible for the majority of South Africans to make it through the month.
“Yet somehow they are expected to make do. This is deeply concerning.”
Consumers lived in a financial pressure cooker in 2023
According to the 2023 NIQ Consumer Outlook Report for South Africa, consumers lived in a financial pressure cooker last year, with 70% of people surveyed already feeling they are living in a recession, while 76% said the increased cost of living was to blame for their financial struggles.
Christie Viljoen, economist and senior manager at PwC in SA, says South Africa is a consumer-driven economy with more than 60% of gross domestic product (GDP) attributed to private final consumption. “Therefore, when household finances are under pressure, economic growth is under pressure.”
Roets says the decline in personal disposable income is a sign of an emergency that should not be ignored, as a spike in household debt usually accompanies it.
“Consumers need lower inflation and lower interest rates. Lower inflation is important because most household spending is from disposable income.”
The results of the latest Altron FinTech Household Resilience Index (AFHRI) released last month show that South African households remain under severe financial pressure, mainly as a result of the restrictive monetary policy stance of the South African Reserve Bank (Sarb). The ratio between household disposable income and household debt costs is the worst performing indicator.
“After increasing consistently since 2016, this ratio took a hefty knock in the second quarter of 2020, induced by the Covid-19 lockdowns, but then quickly recovered to a multi-year high. The reciprocal of this ratio, debt costs to income, increased from a low of 6.7% in the fourth quarter of 2021 to 8.9% in the third quarter of 2023, an increase of some 33%,” Dr Roelof Botha, an economist who compiles the index on behalf of Altron FinTech, says.
Petrol price and interest rates increased consistently over past two years
Botha points out that the country’s benchmark prime lending rate was increased consistently over the past two years, to almost 12%, the highest level in 14 years despite the fact that the consumer price index is comfortably within the Sarb’s target range for inflation of 3% to 6% and that there are clear signs that inflationary pressures have receded since the second half of 2023.
“On the bright side, lower interest rates will almost certainly lead to a new growth trend for the AFHRI, but the lingering effects of higher debt levels and subdued wage growth will be felt during the first half of 2024,” he says.
Viljoen says salaries and wages failed to keep up with inflation during 2022 and 2023, resulting in a decline in the buying power of consumers of about 5% cumulative. This resulted in households being unable to buy the goods and services they could previously afford based on their specific income.
“Consumers are in the worst financial shape in years, battered by high interest rates, increasing levels of debt and salaries that do not keep up with inflation, as well as a higher petrol price,” Roets says.