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The effects of fuel prices on the economy

Economy, Fuel

March 30, 2023

The effects of fuel prices on the economy

The year started on a good note with price cuts of more than R2 per litre for petrol and diesel in January. However, in February and March motorists were hit with hikes. With inflation still on the rise, there will be no reprieve for consumers with another rate hike predicted for later this month as stipulated by the Governor of the South African Reserve Bank, Lesetja Kganyago. The good news is that, we are at least edging closer to April’s excitement about the price changes of petrol and diesel. However, the catch is that there will be an increase of R0.30 in petrol prices, with a decrease of R0.15 for diesel. The stipulated fuel price adjustments are merely predictions made by Central Energy Fund (CEF) which are not law and may change faster than the wind. The CEF is a state-owned energy company which reports to the Department of Energy. Its function is to contribute to the security of the energy supply of South Africa as well as that of the sub-Saharan African region. It is also involved in searching for appropriate energy solutions to meet the needs of both South Africa and the sub-Saharan African region. This includes oil, gas, electrical power, solar energy, low-smoke fuels, biomass, wind and renewable energy sources.

The true deciders of the price, the Department of Energy, decide on the final cost. The fuel predictions for April 2023 are as follows:

Petrol 95: increase of 1 cent per litre (R0.01)
Petrol 93: decrease of 1 cent per litre (R0.01)
Diesel 0.05%: decrease of 55 cents per litre (R0.55)
Diesel 0.005%: decrease of 56 cents per litre (R0.56)
Illuminating Paraffin: decrease of 113 cents per litre (R1.13)

This is preliminary data based on the current oil price and rand-dollar exchange rate, but could change before month end, said the CEF. The weakness of the rand has an effect on the changes of fuel prices. Factors that weaken the rand are: the dollar trading stronger, local factors like persistent loadshedding and South Africa being greylisted (increasing the risk of trade) are being priced into markets.

The effects of fuel prices on the economy

Loadshedding is not the only issue that needs to be mitigated. Businesses as well as the consumers that are dependent on those businesses are strongly affected by the increase and decrease of fuel prices. With regards to the fuel price increase, it calls for an urgent intervention as it shows inflation spiralling out of control. In Gauteng, consumers will pay more than R26 per litre, which paints an disturbing picture regarding transport cost and the overall cost of living. Since the beginning of the year, fuel prices have spiralled out of control. There has been a call for intervention on the government, not only by United Association of South Africa (UASA) but also by consumers. Though there has been a fuel levy relief for the past two months, what is needed is a permanent solution to this monthly crisis. As South Africans, we cannot keep pleading with government each month on the same challenge.

The fuel increase has a strong impact on consumers’ pockets as the current cost of living makes it challenging for people to manage their finances. The reality is people need to commute to work, transport their children to school and run other errands. During this time, we advise consumers to consider planning their day-to-day or weekly travel, join or start a work lift club and even pack lunch to help in saving any bit of money. The increase of fuel prices has motorists feeling uncertain about what the next few months have in store. It also creates uncertainty around the price of food and other commodities. Consumers will have to tighten their belt on shopping by spending money mainly on their necessities.

The price of fuel has an impact on businesses as well. Ultimately the price increase of fuel will result in even the price of transport going up. This means that goods being transported by road will now cost you more. The fuel price increase will also have an impact on employees traveling to work. For many “the hybrid and work from home” was seen as a relief in the tough economic times without having to fill up the tank in a bid to drive to work. But now that Covid-19 regulations have been relaxed there are more staff getting to work using their vehicles.