Fuel price hikes - no end in sight for weary consumers

Zizipho Zungu
Zizipho Zungu

High oil prices have seen rising petrol prices globally, and for already cash-strapped South African motorists, there appears to be no end in sight.

South Africa’s petrol price (R15.72) is behind countries such as Iran (R10.27) and the USA (R11.92), but ahead of countries like New Zealand (R26.14) and the Netherlands (R28.02).

In April, South African motorists took a hard knock when the petrol price increased by R1.18 and then again in May by R0.56 cents.

Following this, another increase of R0.13 cents was announced for 05 June 2019. Recently, South African motorists endured another increase of R0.11 cents per litre.  And now, the AA has announced the price of petrol could increase by up to 10c a litre in September.

Moreover, it warned there could be worse to come.

Oil production rates, fuel taxes and levies charged, as well as the rise in oil exchange rate versus the strength of the rand can all impact the price of fuel.

Unfortunately, rising fuel prices affect the cost of living. Increasing petrol prices have a direct impact on transportation for both public commuters as well as private vehicle users. Food and everyday goods bought from retailers also increase in response; while agriculture and manufacturing, too, feel the impact of increasing petrol and diesel costs for their machinery.

None of this necessarily means a corresponding increase in income for the consumer. For those in the transport sector whose livelihood depends directly on the cost of fuel – for example taxi drivers and bus services – the scenario looks even bleaker.

The continued price hikes have led consumers to question whether there are viable solutions to curb the problem. There have been calls for government to place a cap on the fuel price, for example, with the possibility of a hard price ceiling on 93 unleaded fuel being mooted by then-energy minister Jeff Radebe in 2018.

The Department of Energy has said it is still investigating the possibility of implementing a fuel price cap, but no final outcome has been announced.

Tax breaks

The biggest part of tackling skyrocketing fuel prices would be to revise the tax and general levies charged, which affects the price significantly. This is collected by National Treasury, yet in the long term, there is more cost than benefit for the ordinary South African.

In March 2019, it was reported that almost 60% of the fuel price was made up of taxes, margins and distribution costs, which was set to rise even further. The Carbon Tax Levy, Self-Adjusting Slate Levy and Fuel Levy all contributed to hikes in the fuel price.

By way of explanation, Minister Gwede Mantashe said in June that the combined cumulative slate balance on petrol and diesel had amounted to minus R1.41bn two months earlier. However, cash-strapped consumers are already facing a heavy tax burden and high unemployment rates. Continued belt-tightening is simply not a sustainable solution.   

The only long-term solution is sustained economic growth, which will pave the way for the currency to strengthen, and will help consumers to absorb the costs when they do increase.

In the meantime, as much as we would like to see instant changes to help bring some sort of relief with the petrol price, the reality is that change is still some way away. The more likely scenario is that there will be more fuel price hikes, and weary consumers should start adjusting early to accommodate these increases now.

While we await relief, all we can do is budget: spend wisely on what we need, use public transportation where possible, or rely on lift clubs to save on petrol. For now, there is no end in sight, and consumers are forced to make the best of a bad situation.

Zozipho Zungu is Director of Finance at TTL agency Pacinamix. Views expressed are her own.

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