Fuel price hike to sting consumers as cost of living rises

A sharp jump in fuel prices is expected. File picture: Neil Baynes / Independent Media.

A sharp jump in fuel prices is expected. File picture: Neil Baynes / Independent Media.

Published Feb 7, 2024


Consumers in South Africa are in for a prolonged period of rising cost of living as the price of petrol is set to rise again in March, following a hefty hike this month, as the finance minister hikes the general fuel levy to shore up the government’s deteriorating revenue collection.

The Department of Mineral Resources and Energy (DMRE) yesterday (TUES) announced the fuel price hike for the year, with both types of petrol rising by 75 cents per litre and diesel going up by 70 to 73c a litre.

This will bring the inland price of 95 unleaded petrol to R23.24 a litre, while the coastal price will reach R22.52 a litre.

The wholesale price for illuminating paraffin rose by 53c/litre while the maximum LPGas retail price increased by 37c/litre.

DMRE said the reason for the fuel price hikes was the rise in the global fuel prices and the weakening of the rand.

The average Brent Crude oil price increased from $77.35 to $82.03 per barrel during the period under review due to the impact of the geopolitical risk or attacks on oil cargoes in the Middle East, which caused an increase in shipping rates, as well as the cold weather that affected production in the US, resulting in more than expected inventory draws.

The rand also depreciated slightly on average against the US dollar, from R18.66 to R18.77 during the period under review when compared to the previous one, leading to higher contributions to the basic fuel prices of petrol, diesel and illuminating paraffin by 6.86c/litre, 7.41c/litre and 7.5 c/litre, respectively.

Fuel prices have been the largest contributor to the headline consumer price inflation in South Africa, which stands at 5.1% currently.

The SA Reserve Bank has been reluctant to cut interest rate and held it at 8.25% last month, saying it won’t act until there was convincing evidence that price pressures were heading sustainably to the midpoint of the target of 3–6%.

Analysts do not expect South Africa to lower its interest rates in March or even May, with the most probable cut anticipated around the middle of the year.

Efficient Group chief economist Dawie Roodt said the February fuel price increase was “quite a significant increase” but came after three “nice decreases” in previous months.

As a result, Roodt said this increase will be neutralised by previous decreases, but of course not by 100%.

“It’s not as bad as it sounds. Of course, any increase is bad news. It is likely to put a little bit of pressure on inflation, but the previous three months is likely to neutralise that to an extent too. So I’m not too concerned about this petrol price increase,” Roodt said.

“[But] I don't think this is going to be the last increase in fuel prices. We could see another increase next month and the month thereafter because of the Budget. And any increase, especially when it comes to transport costs, is bad news to the South African economy.

“The Minister of Finance is very much short of money, and he needs to try to collect as much money as he possibly can, because the fiscal deficit is running into some serious, dangerous territory, and at this rate, we are heading for a financial crisis.”

Finance Minister Enoch Godongwana has already warned citizens to brace themselves for potential tax hikes and a decrease in government spending in the 2024/5 tax year due to a significant shortfall in government revenue.

In his mid-term budget in November, Godongwana revealed a significant shortfall in government revenue, projecting a miss of nearly R57 billion for the current tax year and R54bn in 2024/5.

The monthly budget data for the first nine months of 2023/24 financial year already suggests that the budget deficit will exceed 5%.

The government continues to overspend this fiscal year compared with the comparative periods of last year, eroding the chance of the country’s gross loan debt coming in substantially below the projected figure.

For the past two years, the government has maintained the fuel levy at a consistent level to support individuals and businesses grappling with higher petrol and diesel prices, but the markets are expecting an increase in line with inflation for this year.