Fuel hike ‘a ton of bricks’

Johannesburg – A debt management firm is warning that an anticipated 85c to 95c a litre fuel price increase will “hit consumers like a ton of bricks”.

This comes after a warning by the Institute for Race Relations that, should the rand and oil remain at current levels, motorists could expect a fuel price hike of 41c/litre in April. Such an increase, added to the hike in the fuel levy of 30c a litre – which kicks in from next Friday – could see motorists paying between 70c/litre and 80c/litre more for fuel, it says.

According to March 29 figures from the Central Energy Fund, petrol is being under recovered by 85 c a litre, while diesel is being under recovered by around 50c a litre.

The widely-anticipated fuel price hike will be announced Friday and comes into effect at midnight on the first Tuesday of next month.

Currently, the rand is trading just north of 15 to the dollar, while brent crude is almost $40, after recovering from its lows of $30 a barrel earlier this year. In the middle of the month, the Automobile Association said the basic price of petrol is likely to rise by between 31 and 35 cents a litre, while the diesel price looks set to increase by around 60 cents.

On top of that, the government’s Fuel Levy is set to increase by 30 cents a litre from the beginning of April, meaning that diesel could go up by almost R1 a litre, and petrol by 65c a litre, said the AA.

Commenting on the mid-month data, the AA said that gains in the international oil prices were the biggest factor at play.

Now, Debt Rescue is saying diesel could go up by 95c a litre, and petrol by 85c a litre. This is before Transnet’s tariff hike kicks in, which could add to fuel woes.

It notes this is on top of a predicted 7 percent inflation rate with food inflation expected to rise to 12 percent, and a prime lending rate of 10.5 percent following a recent rate hike. This, it says, means the economic outlook for consumers is grim.

CEO Neil Roets says the short to medium term outlook for consumers looks increasingly gloomy with the depreciation of the rand playing a major role in the overall picture.

“Every commodity we import from abroad has to be paid for in US dollars and that includes crude oil. As things stand at the moment there is a strong likelihood that the exchange rate may weaken and that the price of crude will start rising again,” Roets says.

The increase in diesel is particularly worrisome as virtually everything used by consumers is transported by road.

“The problem is that the severe drought earlier in the year – especially maize producing areas – is going to lead to substantial increases in the price of all foodstuffs including staples like maize and wheat which will have to be imported at almost twice the local price.

“There is little the government can do to mitigate the prices of food, especially the cost of maize meal which is expected to increase by 50 percent.”

Independent economist Dawie Roodt adds it is likely that the Reserve Bank would increase the repo rate by as much as 100 points during the course of the year to combat inflation.

“I would not be surprised if they increase it by 125 basis points because inflation in general and food inflation in particular has become a long shadow hanging over the government,” Roodt says.

Roets said there was a host of other increases, including Eskom’s request for a double digit increase coming down the pipeline that were going to massively impact on consumers who are already vastly over indebted. Many consumers are paying back three-quarters of their paychecks to cover debt.

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