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Fuel price increase even higher than expected

by | Nov 4, 2021 | Personal Finance

This month will see catastrophic increases in fuel prices, with South Africans paying R1.21 more per litre of petrol, and R1.48 more per litre of diesel.

This is far higher than the 99c/l increase anticipated by the Automobile Association (AA) of South Africa in last week’s media reports – a prediction that was already 30% higher than the petrol prices seen at the start of the year.

According to Sebastien Alexanderson, CEO of National Debt Advisors (NDA), most South Africans are already struggling to make ends meet, and this steep petrol price hike will see consumers having to once again dip into their already limited disposable income to keep their heads above water. “It is very likely that we will see petrol cost around R20/ litre before year end, and this will have a huge impact on all of us.

“Significant petrol price increases, such as these, push up the price of all other commodities, as the cost to produce and transport raw materials rises. This is then reflected in the cost of everyday necessities like bread, milk, maize – and virtually anything and everything on store shelves. From seed to plate, we will see rising costs.”

The latest Pietermaritzburg Economic Justice and Dignity group (PMBEJD) index revealed that in October 2021, the average Household Food Basket cost R4,317.56.

“With a further R1.45 increase in illuminating paraffin, those who use it for lighting, heating and cooking will be especially hard hit.”

Alexanderson goes on to highlight that the most financially vulnerable often live far away from city centres and work hubs. “This makes transport costs a huge part of their budgeted expenses. A petrol price increase will most likely lead to an increase in the price of public transport costs – something which struggling consumers can ill afford right now.”

He says that South Africa is currently experiencing its highest unemployment rate, with millions of people dependent on social grants. “Those who do have an income and who are credit-active have been significantly affected by the pandemic and subsequent lockdowns, and are still trying to recover.

“At the end of Q2 of 2021 –the average arrears debt per consumer was nearly R16 000. The current debt overall stood at R2. 077 trillion – with over R1 trillion of that allocated to unsecured debt.

“If consumers are in arrears with their accounts and have borrowed to the point where they are using bank issued credit cards and personal loans with interest rates of up to 25% to pay for food and electricity – chances are that they won’t qualify for more debt. Especially since the National Credit Act (NCA) prohibits credible lenders from lending money to consumers who cannot afford it.”

With their access to credit curtailed, Alexanderson says that consumers will in all likelihood turn to rogue micro lenders and community mashonisas – where they will pay up to 100% interest on loans made. “Inevitably, banks are going to start hiking interest rates, and this is never good for consumers. Especially the middle class, who have – for a while now – experienced a degradation in disposable income.”

With Black Friday and the festive season around the corner, Alexanderson cautions South Africans not to overspend and risk become over-indebted. “This difficult financial climate we’re in is likely to get worse. There is no magic wand to vanquish debt. We need to take responsibility for our finances and seek viable debt relief options. We have to get back to the basics of drawing up a budget and sticking to it. If you have a side hustle that can generate extra income, now is the time to optimise it.

“Changing our mindset about money and eliminating our debt, will partially buffer the increase in the rising cost of living,” he concludes.

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