Tuesday, July 27, 2021

Tough times to bite in April in South Africa as price increases loom

April is going to be a difficult month for consumers who can expect a raft of increases in their monthly expenses. Interest rates, electricity tariffs, and petrol are among the bills that will go up from Friday onwards.

The Automobile Association of South Africa said on Wednesday that, including the 30c fuel levy announced in the finance minister’s budget speech, it expected petrol to increase by up to 83c a litre‚ and for diesel to go up by 95c a litre.  Meanwhile, the energy regulator Nersa has approved a tariff hike for Transnet’s petroleum pipeline system, which it says will add a further 5.4c to the petrol price starting next Wednesday.

South African Institute of Race Relations’ chief economist Ian Cruickshanks, says the bulk of the petrol price’s expected increase is due to the oil price, which has gone from just under $30 per barrel to just under $40 per barrel over the past month alone.

“You might say; ‘well, it’s only another $10’,” says Cruickshanks. “But that pushes up the price by 30% so it’s a massive increase, albeit from a low base.” He adds that such a large increase outweighs the marginal gains that the rand has made over the dollar in recent weeks.

There is also the matter of a 9.4% electricity price hike, which, according to Nersa, will add more than 1% to the inflation experienced by low-income households and could cost the economy more than 5 000 jobs.

“It only applies to direct Eskom customers from April,” explains Mike Schüssler, chief economist at Economists.co.za. “The rest of us will get the increase from July.” He adds that these municipal power users will get a marginally higher tariff than what the others receive.

“An average family of four will have to add at least R200 to their electricity bill,” says Schüssler.

Meanwhile, inflation will continue to torment the South African consumer. Food inflation alone was at 8.8% in February, according to Stats SA.

Cruickshanks says potato prices are at record highs, and that the South African Crop Estimates Committee suggested there was a 3 million tonne deficit in the harvest compared to 2015, most of which was attributable to the drought.

Says Cruickshanks: “The price of vegetables is up by 21% year-on-year. All that means is that consumers are going to have a lot less money to support the retail industry… I think there are going to be a lot of hungry people. Hungry people get angry, and angry people protest.”

Stats SA data showed the price of alcoholic beverages and tobacco had risen by 7.6% year-on-year in February, following an 8.3% price hike in January, but any inflation-related increases are sure to be compounded by the 6% to 8.5% sin tax that comes into effect in April. So South Africans are going to have to cut down on entertainment.

The 25 basis point interest rate hike, effected by the Monetary Policy Committee this month, will also come into play in April, adding further pressure to the consumer.

Another problem will be for those people whose salary increases push them into a higher tax bracket, thus excluding them from the tax breaks they now qualify for.

Says Schüssler: “The inflation numbers are going to be very interesting in April. Because in February, we get the medical aid increases. In March, we get the school fee increases. I suspect we’re going to see much higher food inflation in April. I can’t predict the future, but just looking at my month food bill, food prices are going up quite sharply.”

Credit: Money Web
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