The global energy crunch has hit home and businesses and consumers face steep fuel price hikes that could put more pressure on the already weak local economy.
The petrol price is expected to rise next month by as much as 99c to reach a record R19.30 a litre, a 30% increase over 11 months, because of the sharp rise in the oil price in recent weeks and the rand’s volatility, according to the Automobile Association.
A global energy crunch that has swept across Europe and China has seen the prices of energy commodities soar.
Oil rallied to the highest level since 2014 this week as the energy crunch — prompted by coal and natural gas shortages — coincided with an economic recovery from the pandemic, Reuters reported. Oil is trading at around $85 (R1,257) a barrel.
With temperatures falling as the northern hemisphere winter approaches and heating demand increasing, the price of oil, coal and natural gas is likely to remain elevated, traders and analysts said.
The massive upswing in the petrol price may result in high prices for consumers.
FNB economist Koketso Mano said in a note this week that fuel and electricity inflation present the greatest source of upward inflationary risk as they spill over to the cost of producing and distributing goods and providing services.
Mano said she expects fuel prices will be elevated going into the new year as rising demand amid slow-adjusting supply could keep oil prices high in the near term.
Economist Azar Jammine said next month’s petrol increase might not be as big as people have been anticipating because the rand has strengthened in the past few days. It could be just a little bit less than expected but it will still be “fairly substantial” and may push up the inflation rate close to 5.5%, he said.
The effects of costlier fuel will be felt throughout the supply chain.
Maria du Preez, business development director for Bidvest International Logistics, said the industry norm is to include a fuel surcharge in their tariffs to deal with the fluctuating fuel prices.
“The fuel surcharge is adjusted monthly and passed on to our customers, who will pass it on to you and me. Fuel surcharges are also applicable to air freight, and ocean freight rates are adjusted as the international oil price increases, so it's not just a road freight challenge. With ocean freight rates at 309% of pre-Covid levels, the increase in the oil price is just going to cause more pain in the supply chains.”
We remain focused on working with our independent retailers to deliver great value for consumers, who are already under pressure, particularly on essential food items
— Spar spokesperson
Fuel is just one of the costs that are rising for food producers, who have warned of an increase in some food items as they say they are unable to absorb these costs.
Libstar, which owns brands such as Lancewood and Goldcrest, Rainbow Chicken owner RCL Foods, and AVI, with brands such as I&J and Bakers, recently bemoaned increases in the cost of raw materials such as maize, steel, palm oil and glucose.
Yet retailers may not be able to pass on all their costs.
A spokesperson for Spar said that at this stage it is too early to say what the impact of the higher fuel price will be.
“We remain focused on working with our independent retailers to deliver great value for consumers, who are already under pressure, particularly on essential food items” through the group’s private-label products, the spokesperson said.
David North, chief strategy and restructuring officer at Pick n Pay, said: “We will make every attempt to shield our customers from the worst effects of inflation driven by the macroeconomic environment. We have managed to keep our internal inflation below CPI, which is evidence of our ability to do so in challenging times.”
Shoprite did not respond to requests for comment.
Jammine said retailers have to be careful not to increase their prices too sharply because consumers are already under pressure and the economy is weak, and if prices are hiked people will not be able to buy.
He said that because of the pandemic and the impact on economic growth and employment, when there is an increase such as the expected petrol price hike, the knock-on effect is not the same as before.
“When times are good and people can afford things, businesses pass on increases to consumers willy nilly, but times have changed to some extent — that’s why the inflation rate is as low as it is right now.”
Even so, inflation is ticking up, with Stats SA saying annual consumer price inflation edged slightly higher to 5% in September from 4.9% in August and 4.6% in July.
This represented the fifth consecutive month with annual inflation above the 4.5% midpoint of the Reserve Bank’s monetary policy target range.
The main contributors were food and non-alcoholic beverages, housing and utilities, and transport categories.
Stats SA said “fuel was a significant contributor to annual transport inflation in September. On average, fuel prices have increased by 19.9% over the last year.”
The price of inland 95-octane petrol reached an all-time high of R18.34 a litre in September 2021 from R15.18 a litre in September 2020 and R16.03 a litre in September 2019, it said.
The average price for diesel was R17.18 a litre in September 2021, higher than the prices recorded in September 2020 (R14.87) and September 2019 (R16.02).
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