South Africans Should Expect Petrol Price to Exceed R20 a Litre Before Year End
The cost of petrol went up again in South Africa this month with the price now set to top R20 a litre by the end of this year.
Motorists are currently paying R18.82 for petrol in coastal provinces, which is 40% more than the price they were paying in January.
Year-on-year petrol price hike percentages speed way ahead of the country’s inflation rate and based on the current trends we should expect the cost of fuel to exceed R20 a litre before the year ends.
Major influencers of petrol prices are the world fuel (crude) prices and the rand-dollar exchange rate with hikes in the price of petrol caused by either an increase in the world fuel price or the depreciation of the rand or both.
The rand has been fluctuating at around R15 for a US dollar while world crude oil prices have been increasing. Most countries in the world are still under lockdown, which should have resulted in global demand for fuel being lower than in the period prior to restrictions. Although most countries are relaxing COVID-19 regulations, the global economic activity has not reached levels prior to global restrictions.
The implementation of global regulations in the fight against the spread of the Coronavirus has led to people losing jobs, others having to take pay cuts, salary increase freezes and a reduction in turnover for many businesses. A lot of firms are still struggling to get back on their feet while others have folded.
Petrol prices have a direct effect on the cost of living, forming part of input costs for consumer goods and services and pushing up prices South Africans pay in the stores. This is undesirable considering the fact that South Africa’s household income has been reduced dramatically because of the pandemic.
Moreover, South Africa’s economic situation was exacerbated by protests and looting earlier this year. A variety of businesses have still not fully recovered while large numbers of informal traders and SMMEs have succumbed. The contribution of the informal sector and the SMMEs in South Africa’s economy cannot be over-emphasised.
Petrol price increases affect everyone but the poorest of the poor suffer the most and lockdown regulations have exposed and widened the gap between the poor and the rich in South Africa.
In addition to the increased food prices, transport fares have jumped. Most South Africans rely on public transport as they commute to work and mini-bus taxi owners are not shy to increase fares when petrol prices increase, yet they keep fares static when the petrol price drops.
Government added salt to the wounds earlier this year, when it increased the Fuel and Road Accident Fund levies embedded in petrol prices by 4.24% and 5.31% respectively. The timing of this move was arguably not in the best interests of South Africa as it further delays the recovery of the country’s struggling economy and comes at a time where the government has allowed electricity prices to rise.
South Africa’s economy was struggling before the first case of COVID-19 in the country and as infections increased so too did the number of individuals living below the bread line.
Government has the ability to influence the situation through administered prices - those prices which are arbitrarily fixed through government control and intervention in the market.
A decision to adjust administered prices should be considered in the interests of improving economic growth in South Africa.
Dr Sanele Gumede is a Senior Lecturer in UKZN’s School of Accounting, Economics and Finance.
*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of KwaZulu-Natal.