Economic activity moderated in April under pressure from rising fuel prices, with lower transactions across several payment streams during the month.
National payments utility PayInc’s economic index declined by 0.5% to 104.8 in April compared with March, though it was up 6.1% year on year. The index reflects the value of all electronic transactions cleared through PayInc on a monthly basis, in addition to a wholesale cash component.
Volume growth in real time clearing, PayShap and EFT credit transactions contracted in April, while all payment streams, with the exception of DebiCheck, showed declines in the value of transactions.
“The weaker outcome is not surprising in the light of the uncertainty surrounding the full impact of the Middle East conflict on the South African economy. The economic pain inflicted on households and businesses has been very real since the biggest ever single-month fuel price adjustments became effective on April 1,” PayInc said.
After reaching 195.5-million in March, the number of transactions cleared through PayInc declined to 186.3-million in April, though this was an 11% gain from a year ago. The nominal value of electronic transactions also fell to R1.367-trillion from R1.475-trillion in March.
Cumulative increases of R6.29 per litre for petrol and R12.60 for diesel over the past two months have placed additional pressure on households and businesses, with broader inflationary effects expected across the economy.
“Consumers and businesses are already responding to the pressure of higher transport and fuel costs, which is likely to influence spending patterns in the months ahead,” said independent economist Elize Kruger.
“While the economy continues to demonstrate resilience in some sectors, the current environment points to a more cautious consumer and business outlook.”
The government intervened for the second time at the start of May to cushion consumers and business from the steep fuel price hikes by extending its reduction of the general fuel levy for petrol and suspending it for diesel, but signalled it would phase out the temporary relief before July.
The South African Reserve Bank has signalled it might be forced to raise interest rates this year to keep inflation contained, though it is likely to persist above its 3% target until next year.
It will probably be impossible for companies to absorb the extent of the price increases, so not only will consumer inflation spike in April and May, but the probability that the fuel price increase will trigger a widespread upward adjustment in prices across the economy remains quite high, PayInc said.
“While the economy is bracing for impact, consumers have already started to change behaviour to mitigate against the impact,” it said.
It cited data from Discovery Insure, tracking distances travelled and fuel purchased by 200,000 clients, which showed motorists reduced fuel consumption by 35% and their trips by 10% during April, while the total distance travelled dropped 9%.
“Less travelling could also potentially mean less spending. With less money available for discretionary spending, after accommodating higher transport costs, consumers’ spending habits are likely to adjust,” PayInc said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.