Looming fuel price hike will hammer rich and poor alike

The looming hefty fuel hike will further hammer down the poor, hiking food inflation and experts have warned the worst was yet to come as crude oil prices go up.

Also read: Motorists must brace for April fuel price wallop

According to the Automobile Association (AA), fuel levy increases at a difficult time in the country’s economy will contribute to what are expected to be extremely high fuel price increases at the end of March going into April.

Commenting on unaudited mid-month fuel price data released by the Central Energy Fund, the AA said these increases will exacerbate the already dire financial positions of millions of people.

As things stand, the AA said, petrol was set for a 90 cents-a-litre rise, diesel for an increase of 66 cents, and illuminating paraffin an increase of 62 cents.

These hikes do not include the 26-cents a litre increases to the General Fuel and Road Accident Fund levies (excluding the one cent increase to Carbon Tax) announced by the Minister of Finance in his February Budget, which come into effect in April.

“Within the current scenario with the addition of the levies, petrol is expected to increase by a whopping R1.16 a litre and diesel by 92-cents a litre,” AA said in a statement.

Payback for lockdown price drops

Economists suggest that it is now payback time for the temporary relief at the pumps seen during the height of hard lockdown, when travel was curtailed due to the Covid-19 pandemic.

According to economist Professor Bonke Dumisa, the significant decrease in fuel prices last year was driven by the low price of Brent crude oil, which he said had dropped to $38 per barrel because of limited economic activity.

He said the looming April fuel hike of up to R1.16 per litre of petrol and 92 cents for diesel was caused by the rise in Brent crude oil prices, which he said doubled to around $68 per barrel since the resumption of global economic activities.

“We had three fuel increases in the past few months already due to rising costs of Brent crude oil. The price of crude oil may well go beyond $70 per barrel so we are likely to see more fuel price hikes in the next coming months,” Dumisa said.

Multiplier effect will hit the poor the hardest

Dumisa said the upcoming increase in fuel levies were not making matters any easier, and the rise in fuel costs have an impact on the whole food chain, pushing up transportation costs, which in turn lead to increases in the price of goods transported, including basic food items.

He said up to 25% of the income for the low earners went to transport and the rest goes to food and electricity.

“When you increase fuel price, it has what we call an economic multiplier effect. An increase of just one cent reduces profit margins on people who rely on those things for business,” he said.

Even those who don’t drive much will feel it

Lulu Krugel, chief economist at Price Waterhouse Coopers, said to those working from home with less need for travel, the fuel price hike might not be a bid deal but that they will feel the pinch in their shopping trolleys.

“We might feel it but not to the extent of those who still have to travel. But then the fuel price has impact on every aspect of life. It will have a negative impact on inflation. At least 1.4, million people lost their jobs last year. Most people use public transport. It is going to be very expensive to even look for a job,” she said.

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