LISTEN: Consumers ‘trapped in vicious cycle’ ahead of enormous fuel price hike

LISTEN: Consumers ‘trapped in vicious cycle’ ahead of enormous fuel price hike

South African consumers appear to be trapped in a vicious cycle as fuel prices look set to increase dramatically at the start of next month.

A petrol station pump with R5,000 bill
A petrol station pump with R5,000 bill/ Twitter/@CraigGradidge

Unaudited data from the Central Energy Fund (CEF) has warned of massive fuel price increases across the board for June.


Experts and economists estimate petrol could go up by almost R4 per little, breaching the R25 a litre mark.


“An increase in the petrol price to the order of R3.70 or R3.80 a litre will clearly have significant impact in eroding the ability of consumers to spend on everything else,” says chief economist at Econometrix Azar Jammine. 


Runaway fuel prices will also be compounded by the recent 50 basis point increase in interest rates.


The repo rate now sits at 4.75% and the prime lending at 8.25%.


Jammine adds the upcoming fuel price changes may back the Reserve Bank into a corner.


“The Reserve Bank’s big fear is that once you get a staple cost item like fuel increasing in price by a substantial order of magnitude there is a risk that businesses that have to pay that extra will simply add it onto the price of the goods that they sell onto consumers, so you get a vicious cycle of rising prices.


“The only way to clamp down on that is to raise interest rates to discourage businesses from passing on costs to consumers because they know there is a big cost involved in people borrowing money and if they have to pay higher interest rates, they will be less inclines to want to purchase the goods that these companies produce,” Jammine explains.


This while Jammine believes government’s hands are tied.


“The simplest thing that they can do is for government to borrow more money and to subsidise the fuel price for another few months in the hope that oil prices will fall back again and they will be able to recoup that money at a future date but that’s a very risky strategy.”


The Department of Mineral resources and Energy is expected to announce the changes next week Wednesday. 


Listen to Jammine below: 


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