Consumers must tighten belts now in wake of devastating fuel price increases

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29 October 2021, Cape Town, South Africa – The latest expected petrol price increase is a catastrophic blow for already-stretched consumers, and the knock-on effects will be felt long after Christmas – a period when consumers traditionally over-commit themselves – as more South Africans become overwhelmed with debt. The increase doesn’t just affect the running of vehicles, says Neil Roets, CEO of Debt Rescue, the knock-on effect will be felt on grocery store shelves and among a host of other products. 

The AA recently said that South Africans can expect to pay up to 99c a litre more for petrol, while illuminating paraffin may rise by an eye-watering R1,42 a litre – the biggest increase ever. This means that motorists will be paying 30% more for petrol compared to the start of 2021. To make matters worse, motorists should not rule out paying R20 for a litre of petrol before the end of 2021. If this weren’t enough, the Reserve Bank has taken a hawkish tone, suggesting that we may see an interest rate hike as early as the next monetary policy meeting. Consumers also need to contend with increases to the contentious slate levy, a self-adjusting mechanism that the government uses to deal with daily differences in petrol price. With rising fuel prices on the way, there could be another slate levy increase too. 

Economist Dawie Roodt says that while the outlook for economic recovery remains intact, the forces driving global commodity price increases are unlikely to subside any time soon. He adds that it would be in the country’s best interests if the Reserve Bank hikes rates soon because the sooner it happens, the fewer hikes will be needed and therefore the interest rate will remain relatively low. 

“At the moment international commodity prices are quite high and there are a number of reasons for that, including certain bottlenecks globally because of economies moving out of lockdowns. This petrol price increase will also add additional upward pressure on the inflation rate in South Africa. 

However, it is important to note that internationally central banks have already started increasing interest rates and many other central banks have indicated they will be increasing rates soon. I do believe the bank will increase interest rates soon, and we expect about 25 to 50 basis points over the next six months or so. Even after these increases, interest rates will still be relatively low in South Africa. For now, clearly, there is upward pressure on inflation which means the Reserve Bank must increase interest rates and the sooner they start doing that the fewer interest rate increases will be required.” 

Roets adds that on the ground, it will become harder for consumers before conditions ease again. “When consumers cannot make basic ends meet, there’s always a risk they turn to more debt. Using debt to service living costs is a recipe for disaster – it’s like digging a hole that you can’t close.

“However, we know that many consumers lost their jobs and were forced to take pay cuts during the pandemic, yet despite this, their living costs have continued to climb. The unfortunate effect of this is that we’re likely to see even bigger numbers of consumers default and become completely overwhelmed,” says Roets.

He adds that there tends to be a consensus that the geopolitical drivers behind the massive surge in the price of Brent Crude oil are unlikely to alter drastically in the short term, while the spectre of a rate hike means there’s very little in the way of relief for consumers on the horizon. “This makes it even more pressing for people to do everything they can now to prevent themselves from becoming over-indebted, and this means navigating this year’s Black Friday specials and Christmas period extra carefully. Don’t spend what you don’t have.”

Roets says that some people have looked to a second income stream to make ends meet, referencing a growing trend in so-called “side hustles”. A recent report says that almost 4 in 10 middle-class working South Africans have started a small side business. “These include crafts, restoring furniture, teaching languages and much more. If someone has the time and ability to do something like this – without harming their current employment, it is a good idea. However, they should avoid using debt and money budgeted for living expenses to fund a small enterprise. Always follow a strict budget and start small and let it grow,” he says, “but be sure to spend every cent wisely.”

Some people don’t have the luxury of starting a small side business, says Roets, because of a host of reasons such as excessively long work hours and family obligations. “With fewer options on the table, these people should reassess their budget and find ways to reduce what they spend. Granted, many people are at their absolute limits, but by waiting before buying new clothes or electronics, shopping for grocery specials, cutting out unnecessary spending on fast food, alcohol, cigarettes and all other non-essentials, they may be able to find extra money to go towards transport, rent or the bond, and debt obligations,” he says. “However, if they have turned to debt to help finance some of their living costs and are unable to pay back their creditors, they can turn to debt counseling. It is a legal process that assists consumers to repay their debt in a more affordable manner by reducing the installments and extending the repayment terms. The consumer also obtains protection against new legal action.” 

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