WHEN petrol costs rose to a record price of R13.96 a litre on Wednesday, it set in motion a range of costly consequences for Zululand’s leading industries.
Transportation of key commodities to the Port of Richards Bay is now more expensive than ever, while the rand remains weak at around R11/$ and economists warn of trying times ahead.
According to Head of Department of the Economic Faculty at the University of Zululand Dr Irrshad Kaseeram, petrol and diesel price hikes of 39c and 24c a litre respectively, will accrue pressures for local companies down the line.
‘Input costs will be increased and this will be passed on to product prices and ultimately to consumers, but these are second round effects,’ said Kaseeram.
‘The worrying situation is the first round effects of the price hike – it will create expectations of increases down the line, especially food and transport prices, and workers will factor this into their wage demands in the next round of wage negotiations.
‘This will then lead to spiraling inflation.’
On the upside, the South African Reserve Bank has already started increasing the repo rate to help keep volatile inflation in check.
But Kaseeram said if inflation spirals out of control, it will force the Reserve Bank to raise interest rates further, which will in turn raise costs for coal mines and other dominant industries in the region.
‘The characteristic phenomenon in the South African economy is that food and transport inflation results in workers seeking higher wages and this filters into higher production costs.
‘It will also reduce the rate of investment, which in turn will add to the unemployment problem.’
