South Africa’s cost-of-living crisis just reached a new high with news that motorists will be hit with yet another petrol price hike.
This follows the announcement by the Department of Mineral Resources and Energy of the official fuel price adjustments for February 2024, showing a jump in the price of both 93 and 95 Unleaded petrol as well as diesel prices, as of Wednesday, February 7.
Petrol prices will be going up by 75 cents per litre, which means consumers will be paying R22.92 per litre for 93 Unleaded petrol, up from R22.17 in January, and R23.24 for 95 Unleaded, up from R22.49 in January.
This means that petrol is inching back to R25.00 per litre, figures last seen in October 2023 when prices peaked at R25.86 per litre, reaching a high not seen since July 2022 when petrol prices reached an all-time peak of R26.74 per litre.
The price of diesel goes up by between 70 and 73 cents a litre.
The AA said that the movement in international oil prices is contributing a significant percentage to the increases, while the weaker average rand to US dollar exchange is adding an impactful, but smaller, margin.
“With no end in sight to the volley of living cost increases aimed at them, and with consumers already cutting back as much as they can, the latest petrol price increase will cut deeply into the little disposable income people still have left, making it nigh impossible for the majority of South Africans to make it through the month. Yet, somehow they are expected to make do. This is deeply concerning,” Neil Roets, the CEO of Debt Rescue, said.
According to the 2023 NIQ Consumer Outlook Report for South Africa, people lived in a financial pressure cooker last year, with 70% of those surveyed already feeling as though they are living in a recession, while 76% said the increased cost of living was to blame for their financial struggles.
Christie Viljoen, an economist and senior manager at PwC in South Africa, said: “South Africa is a consumer-driven economy with more than 60% of GDP attributed to private final consumption. As such, when household finances are under pressure, economic growth is under pressure.”
Roets said the decline in personal disposable income was a red light that shouldn’t be ignored, as this usually went hand in hand with a spike in household debt.
“Consumers need lower inflation and lower interest rates. The former is key because most of household spending is from disposable income,” he further added.
The results of the latest Altron FinTech Household Resilience Index (AFHRI) showed that South African households remain under severe financial pressure, mainly as a result of the restrictive monetary policy stance by the South African Reserve Bank (SARB). The ratio between household disposable income and household debt costs is the worst-performing indicator.
“After increasing consistently since 2016, this ratio took a hefty knock in the second quarter of 2020 induced by the Covid-19 lockdowns, but then quickly recovered to a multi-year high. The reciprocal of this ratio, i.e, debt costs to income, has risen from a low of 6.7% in the fourth quarter of 2021 to 8.9% in the third quarter of 2023 – an increase of some 33%,” economist Dr Roelof Botha, who compiles the index on behalf of Altron FinTech, said.
Botha pointed out that the country’s benchmark prime lending rate had been raised consistently over the past two years, to almost 12% – the highest level in 14 years.
This, despite the fact that the consumer price index is comfortably within the SARB’s target range for inflation of 3% to 6%, and that there are clear signs that inflationary pressures have receded since the second half of 2023.
On the bright side, Botha said lower interest rates will almost certainly lead to a new growth trend for the AFHRI, but the lingering effects of higher debt levels and subdued wage growth will be felt during the first half of 2024.
Viljoen further added that salaries and wages had failed to keep up with inflation during 2022 and 2023, resulting in a decline in the buying power – about 5% cumulative – of consumers.
This has resulted in households being unable to purchase the goods and services that they previously could afford based on their specific income.
“Consumers are in the worst financial shape they’ve experienced for years, battered by high interest rates, increasing levels of debt and salaries that cannot keep up with inflation,” said Roets.
“My advice to those who cannot find their way out of the debt trap, is to seek help through debt review, where a registered debt counsellor can assist you to manage your financial predicament. This has been a very successful solution for thousands of consumers who are plagued by over-indebtedness,” Roets said.