<\/p>\n
You can also listen to this podcast on iono.fm here.<\/p>\n
JEREMY MAGGS: South Africans are bracing for another brutal fuel price shock, with 95 octane petrol projected to climb above R30 per litre. That is staggering, and diesel also heading sharply higher. But the real pain is not going to stop at the filling station, obviously.<\/p>\n
More expensive diesel, for instance, raises the cost of moving food, running farms and factories and transporting commuters, potentially feeding straight back into inflation and our household budgets.<\/p>\n
Read:<\/p>\n
Petrol price set to breach R30 mark in another fuel first
\nMore for the bank and the tank, less for everything else<\/p>\n
I want to discuss this in a little more detail now. Tracey-Lee Solomon is with me, economist at the Bureau for Economic Research. Tracey, welcome, thank you for joining us.<\/p>\n
How quickly then does a R30 per litre petrol increase become more expensive in terms of food, fares and inflation?<\/p>\n
TRACEY-LEE SOLOMON: It depends on the persistence of this price increase. If we see above that R30 per litre diesel continuing for the next few months, towards the end of the year or the beginning of next year, we could see inflation start to climb.<\/p>\n
Not necessarily overall inflation. We\u2019re already seeing overall inflation decline, but we could see this feed through into food prices.<\/p>\n
As of yet, we haven\u2019t seen that, or at least not in the inflation numbers and this is because a lot of food prices, especially agriculture, so fruits, vegetables, meat, those products, inflation there has been very low.<\/p>\n
Read: Climate change is making these grocery items more expensive this year<\/p>\n
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I know that it doesn\u2019t necessarily always feel that way for consumers, and that\u2019s mostly because we purchase it at different places. But when you look at the CPI (consumer price index) basket, we haven\u2019t seen any indication that food prices are going up because of fuel.<\/p>\n
Of course, there are other factors that could increase food prices. It\u2019s spoken about quite a lot, something like the El Ni\u00f1o that is supposed to damage or inhibit agriculture, that at the moment is more of a risk than fuel prices.<\/p>\n
JEREMY MAGGS: I want to come back to food inflation in just a moment. But what is your modelling say in terms of the trajectory climbing at this point? Are we likely to see the price of petrol increasing? Have you done any work on that?<\/p>\n
TRACEY-LEE SOLOMON: We have done work on that. In terms of the price of petrol increasing, at the moment our projection is for it not to increase in November, and this is mostly because of what we see in the oil price.<\/p>\n
Currently, the oil price is sitting around $100 per barrel. If we see that decline, which a lot of people are suspecting, just because we\u2019ve seen an increase in flows from the Middle East. That\u2019s where the entire situation is happening. That is what\u2019s pushing up fuel prices.<\/p>\n
Read: Diesel prices approaching unseen R33\/l in October<\/p>\n
So if we see that start to come down, as a lot of people are suggesting, we don\u2019t expect another fuel price increase. We also need to take into consideration the level. We need to see the oil prices go above $100, $110, $120 in order to see another increase in fuel prices.<\/p>\n
JEREMY MAGGS: Tracey-Lee, what worries you more economically then, is it the petrol price that consumers see directly, or the diesel increase working its way through every aspect of the supply chain?<\/p>\n
TRACEY-LEE SOLOMON: Well, everything worries me. In terms of the diesel price, diesel is basically the most important fuel for our economy. As you mentioned, it\u2019s transport, it\u2019s manufacturing. So that pushing up inflation, especially for a sustained period, has ripple effects.<\/p>\n
We know that the Sarb (South African Reserve Bank) increased interest rates in September. If this were to continue, another hike wouldn\u2019t be out of the question.<\/p>\n
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I think they\u2019d be very cautious when it comes to another hike, but that would then filter into consumers\u2019 pockets, our interest rate burden that consumers have, which has an impact on consumer spending.<\/p>\n
Read: Why your bills are rocketing beyond inflation<\/p>\n
In the second quarter, we did see an improvement in consumer spending, which I think was contrary to what a lot of people thought was going to happen.<\/p>\n
So the consumer still seems to be spending money, whether this is out of duress or whether this is because they maybe have a little bit of savings they could spend.<\/p>\n
At some point, savings will run out if this these price increases continue. So there are a lot of things that are worrying. But again, we need to see this being persistent. We need to see it going into the first half of next year in order for this really to filter into consumer spending.<\/p>\n
JEREMY MAGGS: There\u2019s also the indirect economic damage where you have the initial fuel price increase, but what happens is consumers start cutting spending elsewhere and that has the inevitable ripple effect, does it not?<\/p>\n
TRACEY-LEE SOLOMON: Yes, it does. I think what\u2019s important is we speak a lot about fuel price increases, but this also increases not just our personal transport costs, it also increases the cost of public transport.<\/p>\n
If you look at public transport, their inflation is 8%, 11%, 12%, so that\u2019s also hurting consumers.<\/p>\n
We\u2019ve also seen that services inflation is quite high and consumers are definitely needing to shift their expenditure.<\/p>\n
Fortunately, as I mentioned, food prices haven\u2019t been biting as much as people have initially thought. So it\u2019s mostly conspicuous spending that will be impacted or the substitution is going to take place.<\/p>\n
JEREMY MAGGS: And all of this, of course, makes the Reserve Bank\u2019s job significantly more difficult moving forward.<\/p>\n
#Diesel #surge #threatens #inflation #interest #rates #consumer #spending<\/p>\n","protected":false},"excerpt":{"rendered":"
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