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56c Petrol Price Increase Coming

Consumers in for a very rough ride with a 56c Petrol Price Increase

With the expected petrol price increase of 56 cents a litre just days away, debt-stressed consumers are going to have to cut unnecessary expenses.

With the expected petrol price increase of 56 cents a litre just days away, debt-stressed consumers are going to have to cut unnecessary expenses to the bone if they hope to get through the month without running out of cash while diesel is expected to remain flat.

Dawie Roodt, Chief Economist at the Efficient Group said that this fourth increase in a row might not be the end of it and that further price hikes in the next few months were “highly likely” and could take the country beyond the historical high prices notched up in the recent past.

“Increased American sanctions against Iran, one of South Africa’s major suppliers of crude oil, are definitely going to be a factor as will the rand dollar exchange rate and the outcome of the upcoming election,” said Roodt.

He added, “If the rand continues to slide against the US Dollar and a shortage of crude drives up prices the result could be too horrible to contemplate”.

Consumers are resorting to debt to put food on the table

Neil Roets, Chief Executive of one of South Africa’s largest debt counselling companies, Debt Rescue, said there was clear evidence that consumers were now resorting to credit just to put food on the table.

Roets said, “In its most recent results, Pick n Pay noted that its Pick n Pay Store account now has 125,000 active customers – an increase of 25 percent year-on-year. While it is undoubtedly used for other items besides food, one can safely assume that the main card expenditure was on food”.

Roets said that it was also painfully evident from the rapid growth of Debt Rescue that a growing number of consumers were falling behind in debt repayments and resorting to the process of legal debt review.

Roet said, “Aside from making life much more difficult for motorists, it is also going to have a wider impact on consumers as the vast majority of goods in South Africa are transported by road. We are seeing daily records being set by the number of distressed consumers who are knocking on our door the be placed under debt review.

Roets said the fuel levy alone had risen by more than 22 percent in the last three years and when the carbon tax kicked in later in the year, this would cause a further spike in the price of all grades of fuel.

The outcome of the election could have a major impact on the fuel price as it could affect the exchange rate.

“If parties to the left show significant gains, this might spook foreign investors and we have seen before how domestic policy can impact on foreign direct investment,” said Roodt.

“We are going to adapt our lifestyle to adjust to tighter market conditions doing more with less,” said Roets.

Roets said that with gross consumer debt at around R1.73 trillion and the government’s gross loan debt at R2.2 trillion in 2016/17 financial year, it is clear that South Africans are in for a very rough ride/

A major issue for the few months is going to be whether ratings agencies are going to further downgrade South Africa’s sovereign debt. This could have a dramatic impact on the cost of state borrowing.

Roets said that almost half of all consumers were three months or more behind in their repayments. The major culprits are credit and store cards followed closely by unsecured debt.

The only measure of relief for consumers who are in over their heads is the legally-binding system of debt review which allows deeply indebted consumers to repay their debts over a longer period of time in smaller instalments often at a discount.

“Lenders are sometimes willing to take a cut if it means they can avoid having to involve debt collectors or foreclosing on the fixed properties of debtors. Another major issue is going to be load shedding and whether a post-election government is going to be able to keep the lights on. Given the mess that Eskom is in, this seems increasingly unlikely and all of us are going to feel the pain,” concluded Roets.

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