The Weekly Editorial

This year, 2014 will no doubt be one of the toughest years for consumers; the prices of almost all essentials have gone up.

The latest petrol price increase of 39 cents per litre and 24 cents per litre of diesel, which took effect on Wednesday morning, means that 95 unleaded petrol in inland provinces such as the Free State and Northern Cape will be just four cents short of R14 per litre for the first time in history. Economists are already predicting that if the rand remains weak, consumers will pay more than R14 for a litre of petrol sooner rather than later.

The weak rand is one of two main factors contributing to price woes. Last week, the currency plunged to fresh five-year lows at R11.38 to the US dollar, and was at a record low against the euro at R15.50. The vulnerability of the rand has offset any reprieve South Africans might have felt by a recent drop in the oil price, which is the other major factor that determines the price of fuel.

Oil cost $113 a barrel one year ago and now it is $106 so the petrol price is going down in other countries, but the rand has weakened so much that it is going in South Africa. Although the petrol price is the most expensive to date for South Africa, historically it has increased in bigger single percentage leaps than the 39- and 35- cent jumps we’ve seen in recent months.

In 2009, the petrol price jumped by 23 percent between January and February. This year’s jump between December and January was a little less than three percent. The increase that took place on Wednesday will be another almost three percent. But while the increases have been comparatively small, it is the cumulative effect on the consumer that is taking its toll.

Some motorists are complaining that the steady increase of petrol prices over the last three years has forced them to make lifestyle changes. And data shows that cash-strapped consumers are putting less fuel into their tanks.

According to Bankserv Africa, which facilitates electronic transactions between banks, motorists spent an average of R489.70 every time they stopped at a service station in December. This was an increase of 3.9 percent, while the price of petrol increased by 9.8 percent in Gauteng.

On average, consumers bought about 2.2 litres less fuel between service station stops this year compared to last. Economist Mike Schussler said while that might not sound like much; it is about a 5 percent decrease. Cash withdrawals from ATMs increased by only 1.3 percent compared to December 2012, as did credit card transactions, said Bankserv. Debit card transactions also only increased by one percent.

The BankservAfrica data also shows that the average trolley in the supermarket cost just over R400 in December, which was up by only 1.6 percent on 2012.

“This clearly indicates a cutting back by consumers, as this is about 4 percent below the inflation rate. Many department stores had a hard time with clothing, books and music sales which all grew average transaction values below the inflation rate,” said Bankserv.

Dry cleaners, barbers, jewellery stores and movie theatres all saw actual transaction values decline in nominal terms, the data collected by Bankserv shows.

Not only have petrol prices been on the up, but electricity bills went up by eight percent from last year, while utility bills increased by 3.5 percent between November and December alone, according to Bankserv.

The Reserve Bank has also tightened monetary policy for those financing debt. Last Wednesday’s announcement by Reserve Bank governor Gill Marcus followed other emerging markets into increasing the repo rate by 50 basis points to 5.5 percent, increasing the prime lending rate to nine percent from 8.5 percent. Marcus cited the weak rand and inflationary risks as the main reasons behind the decision.

A 50 basis-point hike will have a muted effect on the cost of servicing debt. According to Jacques du Toit, a property analyst for Absa bank, the monthly payment on a R500 000 home will only increase by about R200. The figures we have been highlighting above affects people who can afford a car or a house. The impact of the rise in petrol and interests rates on the poor who struggle to put bread on the table is even more devastating.

For them the increase in petrol means an increase in basic foodstuffs such as bread, milk, flour and sugar which they and their families cannot survive without. Goods and services are mainly transport through road in SA and this means the cost of transporting food goes up and the increase is ultimately transferred to the consumer.

According to economists, next year should herald some relief, at least in the petrol price. Millions of poor South Africans cannot wait.