Fuel rise fans flames of poverty

2011-02-26 12:16

Local consumers are facing a tough couple of years ahead as living expenses, especially food and fuel costs, are expected to spiral upwards.

The oil price touched the $119.79 a barrel level this week as the unrest in North Africa and the Middle East unnerved investors and raised fears of inflation.

The oil price was last at these levels in August 2008 when the recession pushed it downwards from $145.33 a month earlier.

Starting from this week, the retail price of all grades of petrol would increase by 43c a litre on Wednesday, the energy department said on Friday.

The price of diesel would increase by 63c and 64c a litre. The wholesale price of illuminating paraffin would increase by 70c a litre.

South African consumers would be more pressed over the next few months as fuel prices were expected to further increase by at least 58c a litre.

Stanlib economist Kevin Lings said the government has increased fuel levies by a combined 18c a litre with effect from April.

“The combination of a higher fuel levy, the under-recovery on fuel price and the pipeline levy means that SA’s petrol price could rise by anything from 58c a litre to 85c a litre over the next couple of months.

“This would push the petrol price up to anything from R9.57 a litre to R9.84 a litre,” he said.

Economist Tony Twine said the oil price shot up because investors had not expected intransigent states like Libya, Morocco, Tunisia, Egypt, Yemen, the Gulf island kingdom of Bahrain and the Arabian Peninsula, and Syria to experience unrest.

“Investors are thinking that if protest actions could happen in those countries, they could happen anywhere in the world where there are intransigent governments,” said Twine.

Additional costs pressures include the planned tolling system in Gauteng later this year and electricity levies. The higher transport costs would be passed on to consumers through increasing food prices.

This would have dire consequences for the country because of the South Africans who earn less than R1 500 a month, most are estimated to be spending more than 80% of their disposable income on food and transport.

“If the rand loses value against the dollar, this would result in a higher price for fuel,” said Eskom economist Mandla Maleka. He said higher oil prices could have a domino effect on inflation and result in the Reserve Bank hiking interest rates later this year.

SA Chamber of Commerce and Industry chief executive Neren Rau said the country was highly dependent on oil, which it imports, and higher fuel prices would add pressure to businesses that are already facing domestic pressures.

“Business has to deal with high electricity prices and green lobby groups. These pressures are making it difficult for businesses to function and this will put pressure on the economic recovery,” said Rau.

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