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Consumers face more pain from rising fuel prices

Jul 08 2018 08:42
Justin Brown

Consumers face increasing pressure with the prospect of another round of fuel price increases next month.

This comes amid food prices that are also climbing, and the increase in the rate of VAT, which rose by 1% on April 1, which is expected to contribute R23 billion in extra taxes.

The latest figures from the department of energy show projections for the price of petrol to rise by a further 40c a litre early next month due to rand weakness and a higher US dollar oil price, said Efficient Group economist Dawie Roodt.

This follows the increase this week in the price of 93 and 95 grades of petrol by 26c per litre and 23c per litre respectively, while the diesel price rose by 24c a litre. This resulted in the price of petrol in the inland areas of the country climbing above R16 to R16.02 for the first time.

BNP Paribas economist Jeffrey Schultz said any increase in the fuel price would drive up transport costs and stoke food price inflation due to the higher costs of moving food products.

All of this would reduce available disposal income in households, he said.

The rising fuel price comes amid a weak jobs market and an economy that contracted by 2.2% in the first quarter of the year, he added.

Price increases

The SA Federation of Trade Unions (Saftu) said this week it was deeply concerned about the effect this week’s increase in the price of petrol and paraffin would have on the living standards of workers.

“It will inevitably lead to further increases in the price of other goods and services, and yet again the poorest will suffer most,” Saftu said.

“The lowest earners will be hardest hit as they spend a larger than average portion of their income on transport and on food. Both will become more expensive as bus and taxi operators raise their fares and retailers increase prices to pass on to consumers the increased cost of transporting goods from farms and factories,” the trade union federation said.

In another development, Fin24 reported that National Treasury’s panel of experts investigating zero-rated VAT items would also consider the impact of recent fuel price increases, minister of communications Nomvula Mokonyane said at a post-Cabinet briefing.

In another blow for local consumers, Capital Economics this week said that instead of President Cyril Ramaphosa’s new dawn, the economy is experiencing a “Ramaphosa slump”.

The latest figures suggested that South Africa’s economy remained very weak in the second quarter that ended in June, the consultancy said.

As a result, Capital Economics has cut its 2018 GDP forecast from 2% to 1.3%.

“There are three key reasons we doubt the economy will stage a sharp recovery in the second quarter. First, while temporary factors contributed to the fall in output in the first quarter, they only explain a small share of the contraction.

“Second, President Ramaphosa’s first few months in office have seen both a faster-than-expected move towards fiscal austerity and an unhelpful lack of policy clarity. VAT hikes will help to stabilise the public finances, but they are a painful drag on domestic consumption.

“Third, the optimism surrounding Ramaphosa has proved fleeting,” Capital Economics said.

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