Hefty fuel price hike to jolt consumers

WITH a big petrol price hike anticipated next month, the Road Freight Association (RFA) said any gains achieved last year were steadily being eroded and road freight companies will now be faced with the reality of having to increase pricing to cover the ever-increasing costs of fuel.

This as the Automobile Association (AA) on Thursday noted huge petrol price hikes expected in light of data released by the Central Energy Fund.

According to the AA, the current data is projecting fuel prices to breach the R24/litre mark for both grades of petrol, edging close to the R25/l record high seen last year.

This would mean 95 octane petrol is set to increase by R1.35/l, 93 octane by R1.31/l, diesel by between R1.43/l and R1.59/l and illuminating paraffin by 96c/l. The association said it was concerned about these expected increases which would undoubtedly put more pressure on already stretched consumers.

“These hefty increases also reaffirm our belief that a review of the fuel price is necessary to establish if any components within the current pricing model can be revised by the Department of Mineral Resources and Energy (DMRE) to mitigate against rising costs, especially for diesel as higher input costs will be recovered through higher prices at the till.

“In addition, we again call on the Minister of Finance to strongly consider not increasing the General Fuel and Road Accident Fund levies in his Budget Speech on 21 February. Any relief – even in the form of non-increases – would be welcome to a consumer base already reeling from economic hardship,” the AA said.

Bureau of Economic Research economist Tracey-Lee Solomon said the anticipated fuel price hike stemmed from an uptick in crude oil prices and the depreciation of the rand.

“Over the past month, crude oil costs have surged due to escalating tensions in the Middle East. Concerns about the potential spread of violence beyond Gaza to significant oil-producing nations in the region have kept oil prices elevated.

“Despite disruptions to shipping in the Red Sea, oil tankers and oil prices were relatively unaffected. However, an attack on a Russian oil-carrying tanker in late January prompted alarm, resulting in Brent crude oil prices hovering above $80/bl since then. Despite the prevailing tensions, oil prices have not skyrocketed as anticipated, owing in part to subdued global demand amid sluggish global economic growth forecasts,” Solomon said.

“Ironically, the cause of the muted demand outlook is expectations of prolonged higher interest rates, which have, in turn, bolstered the US dollar, and weakened the rand.”

She added that the impact of a petrol price hike would affect headline consumer inflation.

“Higher fuel prices should also increase producer price inflation, particularly if load shedding remains at current levels. Many businesses rely on diesel to keep running. Finally, higher fuel prices have the effect of crowding out other consumer spending.”

RFA CEO Gavin Kelly said any gains achieved in 2023 were steadily being eroded and road freight companies would now be faced with the reality of having to increase pricing.

“Some transporters run day-to-day pricing dependent on their business model, while others may have contracts that determine how and when (if any) increases or decreases are factored in. A challenge for any transporter is always the need to fund operations, which includes the daily consumption of fuel, against the backdrop of delayed payment for services rendered. As the cost of transport increases, and the ever decreasing levels of disposable income of the consumer begin to factor into retail and other sales, businesses will reduce volumes to be transported or even curtail stock movement depending on consumer consumption levels.

“Transporters will feel this impact on their businesses. Many transporters will not be able to muster the guarantees required for purchasing fuel on credit (as customers take up to 90 days to pay after the transport has been provided) – and the transporter has paid for fuel, paid the driver, covered other costs and still needs to operate a business. Some just won’t have any cash to carry themselves for 90 days.

In the short term – general transport costs will rise from food to fuel, from clothing to electronic goods and everything in between. There will be the inevitable price escalations – some immediately, but more so a domino effect will ensue, the next in a long line of such domino effects that we have seen too often in the last few months,” said Kelly.

Cape Times