In about three weeks’ time the temporary fuel levy relief that the government put in place in April will come to an end. With inflation now at 6.5%, its highest point since 2017, and above the SA Reserve Bank’s upper target limit of 6%, the ripple effect of reversing the fuel levy relief could be devastating.
The deepening cost of living crisis, driven largely by rising food and energy prices, is not unique to SA. Across the world, as countries tried to make their way back to pre-Covid-19 growth levels, the war in Ukraine further disrupted already fragile energy and food markets.
In combination with this, supply chain disruptions (also a remnant of the chaos unleashed by pandemic-related business, harbour, and market closures) and record commodity prices, have been pushing many countries to a dangerous inflationary surge that is threatening household welfare, especially for the poor and vulnerable.
For SA, where about 25%-30% of the population lives in extreme poverty and faces daily hunger, these cost-of-living increases can turn a desperate situation into an impossible one.
With an unemployment rate of about 35% (the narrow definition) it should not come as much of a surprise that for 24% of households, social grants are the main source of income. Stats SA’s latest general household survey found that a larger percentage of households received grants compared to salaries as a source of income in the Free State (60% versus 53.2%), the Eastern Cape (63.7% versus 46.2%), Limpopo (65,7% versus 49,7%) and Mpumalanga (66,2% versus 50,9%).
Nationally, 5,8% of individuals accessed the Covid-19 social relief of distress grant in 2021. This R350-a-month grant is intended for individuals who have no other source of income, which would imply that for about R3.5m people their only income is this once-a-month R350.
But the situation does not look much better for minimum-wage earners who have the additional expense of having to travel to and from a job. In its latest household affordability index, the Pietermaritzburg Economic Justice & Dignity Group calculates that in June 2022 families living on minimum wage were already underspending on food for their families by about 43%.
The organisation has previously said that from a minimum wage of R3,895 a month, a worker typically spent R2,075 (53%) on electricity and transport, leaving R1,820 to secure all other household expenses. For a typical family of 4.5 people, this would not cover half the cost of a household food basket, which according to the organisation cost R4,688 in June.
The organisation warns in its June report that the escalation of food inflation on basic staple foods is a big concern that is likely to lead to increased hunger, increased risk of social instability, and a general deterioration of health. This is even before the annual electricity tariff increase of about 10%, which comes into effect this month, is considered, which along with the hefty increases in fuel prices was likely to push food-price inflation even higher.
The Bureau for Food and Agricultural Policy in its latest inflation note looks at the effect that the temporary fuel levy relief had, and what the cost might be when it falls away at the end of this month. The government reduced the general fuel levy by R1.50/l for April, May and June and by R0.75 for July in an attempt to contain the soaring prices of fuel.
In its analysis, the bureau calculated what food inflation might have looked like in the absence of the fuel cost relief and the results suggest that for a 1% increase in diesel costs, the cost of the bureau’s healthy food basket will rise by about 0.53%. This figure only considers increases in fuel prices without accounting for changes in commodity and other product prices. Without the temporary relief, the cost of the food basket would have been about 3.5% more in June and about 2.5% higher in July.
With the relief measures suspended in August, the bureau estimates that the cost of the healthy food basket could increase by 10% between May and August, and this can be worsened over the coming months by a weakening in the exchange rate and/or increases in global oil prices. This is an unsustainable rate of increase, especially considering that the price increase on the bureau’s healthy food basket for the full year between May 2021 and May 2022 was 5.5%.
No wonder then that warnings are being sounded about growing anger, fuelled by rising costs, poor service delivery, load-shedding and widespread unemployment, bubbling over into a repeat of the July 2021 unrest.
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