Debt warning: Don’t be fooled by petrol price relief

Cape Town – While motorists can expect a further drop of 60 cents in the petrol price next month, the country is still in a technical recession and the price could increase in months ahead, warned a debt expert.

The Automobile Association (AA) expects a petrol price decline of between 60c and 64c a litre in July, with diesel showing a 60c reduction and illuminating paraffin a 57c drop.

This follows a 25c drop in the petrol price and a 23c drop in the diesel price in June.

The AA said in a statement that the fuel price will come under pressure if the three major ratings agencies downgrade rand-denominated debt to junk status in future reviews of South Africa’s sovereign credit ratings.

“That could trigger substantial capital outflow, almost certainly leading to rand weakness which will be heavily negative for the fuel price,” the AA said.

“Barring unexpected political or economic shocks in the lead-up to the next ratings reviews, we expect fuel price movements to mainly depend on international petroleum prices,” the AA said.

The debt warning

Debt Rescue CEO Neil Roets cautioned that the expected drop in the fuel price should not be seen as a windfall.

“We are still technically in a recession with growth well below 1%. The rand will probably decline further in value against the dollar which is going to impact on everything from fuel to food.

“Consumers are already up to their necks in debt carrying a combined debt load of R1.66trn,” he said.

“If we see a significant rise in the fuel price in August, this is going to have a substantial impact on the prices of virtually everything and let us not forget that we are technically in a recession, with two quarters of negative growth behind us.”

Should the fuel price increase in August, there would be a commensurate hike in the prices of almost everything else because of the heavy reliance on road transport, Roets said.

“It is going to make for a toxic mix that is going to severely impact the more than half of all South Africans who are three months or more behind in their debt repayments.”

Roets said that since the beginning of January there had been a marked increase in the number of consumers who sought relief by going under debt review.

“We have seen an increase of over 20% over the past several months of the number of debtors approaching debt counsellors for help.”

He said that for consumers who have not already drawn up a budget, now is the time to do this.

“Get rid of credit cards and store cards which carry very high interest rates and try and avoid borrowing money as unsecured loans that also carry extortionately high interest rates,” he said.

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