Consumers have little reason for cheer, as rapidly rising oil prices and the prospect of another interest-rate increase by the Reserve Bank look likely to put the brakes on festive-season spending.
Economists have warned of a bleak festive season as the oil price peaked at $96 (about R630) a barrel on Wednesday because of growing demand, the simmering stand-off between Turkey and Kurdish rebels based in Iraq, and the long-standing threat of a US attack on Iran. The problems facing the oil markets are creating a high level of uncertainty and pushing up prices around the world.
South African consumers are already feeling the inflationary pinch, in part because of increasing food and transport costs, and they are paying more to service their debt because of seven interest rate increases since June last year.
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As the price of oil nears the $100-a-barrel mark, global fears of recession have grown. Oil shortages resulted in hard times for consumers in 1973, 1980, 1981 and 1990. Analysts predict that crude oil will break through $100 a barrel before the end of the year.
Tony Twine, the senior economist for Johannesburg company Econometrix, said that if oil remained in the $90-a-barrel region, motorists would have to fork out at least 84c a litre more for petrol.
The price goes up by 3c a litre on Wednesday, restrained by a strong rand (R6,57/$ at Friday's close).
"Indebtedness is up; interest rates have risen; a higher proportion of available income is being used for servicing debt; and prices have risen sharply, particularly those of food and fuel, so there will be a squeeze on consumer spending this Christmas," he said.
CPIX inflation was 6,4 percent in both May and June. It then increased to 6,5 percent in July and was 6,3 percent in August. Food prices increased at year-on-year rates of 10,2 percent and 11,3 percent in July and August respectively, despite some easing off in meat-price increases. CPIX inflation is now close to 7 percent. According to Statistics SA, the year-on-year increase in food prices was 11,9 percent in September - and rising.
Twine said the 20 percent gross increase in the turnover of retailers of the previous two festive seasons was unlikely to be repeated, but the situation was not as bad as between 1975 and 1999, when inflation was between 14 percent and 20 percent.
Goolam Ballim, the chief economist for Standard Bank, said the rising oil price was offset by the strengthening rand, but consumers were caught in a restrictive phase of the interest rate cycle. "It is not going to be a black Christmas, but consumers are going to be more careful in extending themselves," he predicted.
Ballim said Tito Mboweni, the governor of the Reserve Bank, would take some of the sparkle out of the festive season. "This Christmas will be pretty challenging for people purchasing gifts, especially electrical goods, because the costs will be higher and credit financing more expensive."
Patrick Craven, the Congress of South African Trade Unions spokesman, said the federation was concerned that the biggest price increases were on goods and services, such as transportation and food, which were essential to members of low-income groups. "We are aware that there are global problems but we want the government to investigate whether there is any profiteering as a result of increasing prices."
Craven added that the Reserve Bank had always blamed interest-rate increases on inflation but had failed to curb inflation, although it hurt the poor and slowed the economy and job creation. "We cannot allow inflation to be used as an excuse to bring the economy to a standstill. Cosatu is opposed to any more [rates] increases," he said.
He said Mboweni claimed his mandate was to curb inflation, but Cosatu believed the mandate should be changed and that the bank should adopt a pro-employment and anti-poverty stance. "Making jobs and poverty the priorities would be by far the most important way of eliminating poverty and strengthening the economy," Craven stated.
Muzi Mkhize, the chief director for hydrocarbons in the department of minerals and energy, said rising oil prices were having an effect on petrol costs. "It is bad news for us if the price of oil remains in the region of $90 a barrel," he said.
Mkhize said the department was reviewing its policies on pricing and stockholdings. "We need to focus on fuel-efficiency issues and how to cut down on use," he said.
Mboweni warned last month that oil and food prices continue to cloud the inflation outlook.
- This article was originally published on page 1 of Sunday Independent on November 04, 2007
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