Price hike double-blow to hit South Africa over Christmas

South African consumers face a double financial blow over the December holiday period as steep petrol price increases and growing grocery inflation take effect.

The country’s latest fuel price increase, which took effect on 1 December, has seen the fuel price pass the R20/litre level for the first time on record.

The recent upswing in international crude oil prices, with the average Brent crude averaging $82.50/ barrel, coupled with the sharp depreciation in the rand exchange rate to R15.85/dollar led to the latest upward revision to the fuel prices.

“We are taking as much pain as we can. Each month is worse than the previous one, and this comes at a time of other increased costs such as the recent interest rate hike of 25 basis points, which makes all forms of credit that much more expensive – just as the festive season gets into gear,” said Neil Roets, chief executive of Debt Rescue.

“It’s no wonder then that so many South Africans put purchases on credit at this time of year (60%) while 73% of consumers have no money left come January.”

Efficient Group chief economist Dawie Roodt said these new increases will add to inflationary pressure – a double-blow for South Africans over the expensive holiday season.

“Notwithstanding the costs to the average commuter, we know that a lot of goods need to be transported long distances which will reflect in higher prices at the till points,” he said.

“These inflationary pressures could force the SARB to increase interest rates even further. This is coming at an unfortunate time for South Africa.”

Compounding matters for South African commuters, is a weak domestic currency, which adds to the pain created by a global rise in fuel costs on the back of geopolitical and supply issues, he said.

Food and groceries 

South Africa’s petrol price increases feed directly into rising food and transportation costs, both of which will have an impact on consumers over the holidays.

The fuel price increase comes against the backdrop of a sharp increase in input costs mainly fertilizer, pesticides, and herbicides, driven by a combination of global supply shortages and the weakening of the rand exchange rate versus the US dollar, said Paul Makube, senior agricultural economist at FNB Agri-Business.

“This is obviously not good news from an agriculture perspective given the already high input costs.

“Increased activity in terms of planting, transportation of production inputs, distribution of produce as in the case of horticulture and livestock, as well as harvesting will attract additional costs which will negatively impact the profit outlook for farmers in the year ahead, despite the current strength in commodity prices.”

Profit margins are gradually shrinking, and it will be difficult for farmers to continue to absorb costs in the medium term if the situation does not improve, said Makube.

“Further, this is likely to dampen the food inflation outlook which has been relatively contained below 5% since October 2018.”

Statistics South Africa’s latest Consumer Price Index for October 2021 shows that Headline Inflation is 5%, and for the lowest expenditure quintiles 1-3, it is 6.5%, 6% and 5.2% respectively. CPI Food inflation is 6.7%.

The latest Household Affordability Index by the Pietermaritzburg Economic Justice & Dignity group (PMBEJD) shows that the average cost of the Household Food Basket was at R4,272.44 – down R45.11 (-1%), from October.

Year-on-year, the average cost of the food basket increased by R254.19 (6.3%), from R4,018.25 in November 2020, and the overall basket cost is R416.10 (10.8%) higher than September 2020, when the basket was first tracked.

Read: The average take-home pay in South Africa right now