Double blow to pockets Petrol, food price hikes to hit hard

FROM midnight, consum­ers will pay more for fuel and should brace themselves for further increases including meat prices by the end of the year, say experts.

The price of petrol will in­crease by 44 cents a litre and diesel by 22 cents.

Gwarega Mangozhe, chief executive at the Consumer Goods Council of SA, said the higher price of fuel, dir­ectly linked to the weakening of the rand against the dol­lar, will inevitably impact on disposable household incomes already under pressure from other cost increases.

“Consumer spending is sub­dued and some of our mem­bers have noticed a change in shopping habits as consum­ers search for bargains, while some are prioritising their overall spend on groceries in the light of tighter disposable incomes.

“While we remain confident that many of our members will experience a fairly busy festive trading season, the overall out­look remains uncertain given the predicted low economic growth in 2016.”

Momentum economist, Sanisha Packirisamy, said the 43c/l under recovery in the price of petrol last month was largely a function of a 1.7% depreciation in the rand against the dollar between Au­gust and September and a 0.4% uptick in average monthly international oil prices over the same period.

She said the Organisation of the Petroleum Exporting Countries (Opec) caused a 7% rise in international oil prices late in the month because of a largely unexpected agreement by Opec to cut production lev­els.

“If oil prices persist at these levels there could be a further increase in petrol prices next month, should the rand stay at similar levels as well.”

Packirisamy said the rand was also under pressure from heightened fears around a sovereign rating downgrade by Standard and Poor’s rating agency in December on the back of weak growth funda­mentals and persistent policy incoherence.

“In our view, the expected rise in petrol prices still leaves the year-on-year inflation rate in private transport costs in the Stats SA consumer basket at reasonably low levels.”

Standard Bank economist, Kim Silberman, said the out­look for the rest of the year was for the petrol price to continue to rise, which will add pres­sure to consumers’ disposable income.

Consumers

She said consumers spent on average 5.7% of their in­come directly on petrol, which added pressure to consumers’ disposable income.

“However, the effects of the fuel price are far broader than that and will most likely feed through to the price of pub­lic transport and the general cost of producing goods and services. We expect meat price inflation to accelerate in De­cember.”

Neil Roets, chief executive of debt management firm Debt Rescue, said he expected fur­ther increases in the price of fuel towards the end of the year.

“The ongoing political bick­ering within the ANC and an extremely sluggish economy is likely to impact the rand and it looks as if the price of crude oil may also be on the rise.”

Roets said one of the ma­jor effects of the fuel price increase on the economy would be the continued rise in the price of food.

“The announcement by the Red Meat Producers Associ­ation that the red meat price could increase by as much as R8 per/kg in the short term and that it could take between three to five years to restore herds after the severe drought, is bad news for consumers de­pendent on meat for their daily survival.”

Roets said the real elephant in the room was the expected downgrade by the ratings agen­cies later in the year.

“Despite all the efforts by the government to persuade the agencies that the economy was on the mend, they are not buying into the narrative and the reasons are clear: wide­spread corruption and parastatals like Eskom and SAA that are burning through tax­payers’ money at an alarming rate,” Roets said.

Damon Sivitilli, head of marketing at debt manage­ment firm DebtBusters, said the price of fuel increasing put more pressure on the already strained budgets of many con­sumers.

He said not only would the fuel hike and the resulting in­creasing cost of commodities choke consumers, it would also have a huge impact on small businesses across the country.

Sivitilli advised consumers to start reviewing their budgets by looking at their needs and adjusting their spending on luxuries in order to survive the economic and political tur­moil.

“The repo rate went un­changed last month due to stable inflation rates, but the upcoming increase in petrol costs may put pressure on this once again and continue the trend of rising inflation and costs into the new year.”

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