Small petrol price relief for consumers, but rocky road ahead

This week brought small petrol price relief for consumers of 15 cents per litre, but consumers must still prepare for a rocky road ahead as the weakening of the rand this week could drive prices up again.

The petrol price was ultimately supported by range-bound oil prices and a generally stronger rand against the US dollar, although this is no cause for celebration as economists warn that, despite three successive petrol price cuts, the weakening of the rand this week could drive diesel and petrol prices up as the country heads toward the festive season.

The rand weakened the most it has in almost two months on Monday amid fears of the US economy falling into a recession spooking global markets.

“The rand has pulled back on investor concerns that Friday’s weak US labour market data risked the soft landing for the US economy that was factored into market expectations. The rand remains a highly volatile currency, subject to significant fluctuations on changes in global financial market risk sentiment, with further weakness a risk,” Annabel Bishop, chief economist at Investec, says.

Neil Roets, CEO of Debt Rescue, points out that fuel costs play a critical role in the lives of most South Africans and we can ill afford any more price hikes in the months to come. “A major repercussion of any petrol price hike is that it inevitably drives up inflation.”

It is worth noting that 75% of consumers rank inflation as the number one risk they believe could affect the country over the next year, according to the PwC Voice of the Consumer Survey 2024 released in July.

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Accumulated impact of escalating prices

“The accumulated impact of escalating electricity and food prices, consistently high interest rates and the volley of petrol price increases earlier in the year, has pushed people to the very edge of a financial precipice,” he warns.

This comes as no surprise when considering the increased costs associated with the latest interest rate hike cycle. Roets says interest rates in South Africa have been at a 15-year high since May 2023, resulting in hefty additional repayment costs for car owners with vehicle asset finance, which has contributed to the severe financial pressure households are under.

Data from WesBank supports this view and indicates a 3.5% increase in the average loan amount for new vehicles in June this year. “In real terms, this means that someone who bought a car at the beginning of the interest rate hike cycle at 7% interest (prime rate in September 2021), has been paying on average R834 more per month at the current 11.75% prime rate since May 2023, adding significantly to their financial pressure.”

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What happened to review of petrol price formula?

The Automobile Association welcomed President Cyril Ramaphosa’s announcement in his opening address to parliament of a review of the fuel price formula. “At the time we noted this validated our years-long call for a fuel price review to mitigate against rising fuel costs which continue to affect embattled consumers.

“We also noted the president’s bold step to announce that the review should unfold quickly and all role-players in the country’s fuel value chain, including civil society organisations such as the AA, should be part of the discussions,” said the AA.

“However, since the announcement there has been no communication from any department on when and how the review will occur. We again call on government not to lose the momentum and initiate the process as soon as possible, especially since fuel costs play a critical role in many sectors of the economy.”

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Concern that consumers are at financial breaking point

Roets says he is deeply concerned that consumers are at breaking point under the financial onslaught from South Africa’s two largest energy sources powering the economy and that authorities are simply ignoring the writing on the wall. 

“The reality is that people are unable to sustain themselves and their families due to the high price of petrol to drive their vehicles and electricity to heat food and keep the lights on and are turning to debt simply to make it through each month.”