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Fuel price hike will create toxic mix - debt expert

Cape Town - An expected increase in the fuel price and the likely resultant hike in the prices of goods, because of the heavy reliance on road transport, will create 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.

This is according to Neil Roets, CEO of debt management company Debt Rescue. In his view, further fuel price increases can also be expected later this year and that will add to the bad news for already indebted consumers.

It is estimated that there will be about a 44 cents a litre increase in the price of petrol and 37 cents a litre hike in the diesel price in February, according to Roets. The increase will be caused largely by sharp increases in the price of crude oil.

“Deeply indebted South Africans who are already at their wits end because of rising food prices and crippling taxes will be hit hard by this increase,” said Roets.

At the same time, he regards the SA Reserve Bank's decision on Tuesday to keep the repo rate steady at 7% as good news.

“We think this may be a temporary measure because pushing up the repo rate is one of the few tools the Sarb has at its disposal to curb inflation,” said Roets.

He added 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.

“While we always see a spike early in the year because of the debt hangover caused by excessive spending over the Christmas holiday, this year has been exceptional. We have seen a double digit jump in the number of debtors approaching debt counsellors for help,” said Roets.

“With food inflation running at 11% and the Consumer Price Index (CPI) running at 6.6% - well above government parameters - there is not the slightest possibility of relief in sight for consumers."

Total consumer debt now stands at close to R1.6trn, according to the latest figures released by Sarb. A recent World Bank index has shown that South Africa is one of the most indebted countries in the world.

READ: Massive petrol price hike for New Year

Unchanged

Shaun Rademeyer, CEO of BetterLife Home Loans, explained that the main factors in favour of keeping interest rates unchanged were the relative strength of the rand against the dollar and other major currencies in the past few months, and the likely moderation in food prices over the next few months now that the drought has broken.
 
“In addition, the MPC would obviously like to see the economy start to grow faster than it did last year, and a rate rise would have worked against that. Business and consumer confidence have declined in recent months and retail spending and credit extension were at lower-than-expected levels in the fourth quarter of last year," said Rademeyer.
 
“On the other hand, though, SA does urgently need to attract more investment, and if the US economy starts to grow now as a result of President Donald Trump’s new policies and the Federal Reserve starts to raise rates, the Sarb may have to follow suit to remain competitive.”
 
In Rademeyer's view, the MPC decision to keep interest rates unchanged this time, should be appreciated by those planning to buy a new home in the near future, as it will make it easier to qualify for a home loan and easier to save for a substantial deposit.

According to independent agricultural economist Fanie Brink, fuel prices will further rise in February 2017 according to the latest information from the Department of Energy. According to this information, the price of gasoline 93 (ULP & LRP) in Gauteng will possibly rise by 31.3 cents per litre and the price of diesel with a 0.005% sulphur content by 24.0 cents per litre on Wednesday February 1. 

"The main reasons for these price increases can still largely be attributed to the higher crude oil and international petroleum product prices after the members of the Organisation of Petroleum Exporting Countries (Opec) and the 11 countries that are not members of the organisation, on 10 December 2016 finally reached an agreement to reduce their production of crude oil by 1.8 million barrels per day. The agreement came into operation on 1 January 2017 for the next six months, explained Brink.

The February fuel price increases should be announced on Friday 27 January 2017.

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