The full impact of another fuel price hike is likely to be felt for tired motorists, who are preparing for an R3-per-liter increase in early June – and those who had to bear the brunt of the news that gasoline inflation is pushing ever higher.
However, very few of us realize the fact that petrol and diesel prices have almost doubled in the last five years.
Recent estimates show that the price of petrol in Gauteng is set above R24 per liter and the price of diesel above R25 per liter, depending on the outcome of official negotiations that the “temporary” reduction in excise duty was the last announcement. Months
Petrol was sold at Rs 12.63 per liter and low sulfur diesel at Rs 11.02 per liter in July 2017, according to figures provided by the South African Petroleum Industry Association (Sapia).
However, just looking at the monthly increase in fuel prices or calculating how much it will cost to fill a car tank compared to the previous month, does not show the actual burden of fuel price increase in a consumer’s monthly budget.
If we calculate the increase in the total monthly fuel consumption of a household as compared to a year ago, we can see the complete (direct) horror of the increase in fuel consumption.
The amount is in the thousands – and in some cases the monthly fuel bill can cost more than a car installment.
Average fuel consumption
It is difficult to determine what constitutes the average consumer, their average car, and their driving habits. The results of SA’s general car owners trying to guess are open to criticism, but some calculations still give a fair idea of the total cost of transportation.
For example, used car dealerships will consider a car that has an average speed of 30,000 km per year, so much so that there is an official evaluation guide written around this figure.
South African Revenue Service (SARS) taxpayers use 30,000 kilometers per year as a yardstick to determine the personal use of a vehicle when submitting their tax returns.
Thus, 2 500 km per month can be taken as an average figure.
A second guess is needed: what is the average car and its fuel consumption? It is difficult to predict driving style as well as driving in city traffic or freeways.
Manufacturers of small cars boast of five liters of fuel consumption per 100 kilometers, while car price lists and relevant statistics show that larger cars can burn three times more petrol.
Popular cars
New car sales figures indicate that people prefer cars. In real life, motorists seem to prefer either a Toyota Hilux (the best-selling car in SA in 2021) or a Volkswagen Polo Vivo (last year’s second most popular car).
Toyota statistics show that the Helix uses about 13 liters of gasoline per 100 kilometers, depending on the engine choice. Diesel engines are more affordable with a cost of about nine liters per 100 km.
According to the manufacturer’s statistics, Volkswagen Polo uses about seven liters of fuel per 100 kilometers.
If petrol prices rise as expected in June, it will cost a Hilux owner about R8000 per month on petrol or about R5 600 on diesel to drive an average of 2,500 kilometers per month.
Running a small Polo Vivo will cost the average owner R4 200 per month.
In fact, most middle class families have two cars. If this is one of the popular choices, then the monthly household budget is bound to go up to R14 000 for fuel.
Five years ago it was half over, which then seemed like luck. Ten years ago, in July 2012, when petrol was sitting at Rs 10.61 per liter, the monthly fuel bill was R5 300.
Everyone knows the reason for the increase in fuel prices. International oil prices have risen above $ 100 between $ 60 and $ 70 per barrel, while the rand has weakened against the dollar – from R12 to R14 for several years and then to R16 dollars.
Read: SA’s dependence on fuel imports is going to increase manifold
The Automobile Association (AA) says the April fuel price hike has pushed petrol and diesel to record highs, putting financial pressure on all of South Africa.
The AA noted that the reduction of R1.50 in General Fuel Levy (GFL) for April and May would be welcome and would ease some of the pressure on troubled customers due to rising fuel prices across the board.
It said the government had indicated it was looking at a number of proposals to deal with rising fuel costs in the future, and called on the AA to speed-track these plans, as fuel prices could rise in the short to medium term.
Read: The ratio of SA family to those who can afford a car is low, says CMH
Tax
There is very little room for further relief in the fuel tax. The government may take a temporary leave because tax revenues have risen from higher commodity prices and an unexpected rapid recovery in the economy. But how long will it last?
Then there is the growing demand for more social grants and higher wages for state employees.
According to Sapphire statistics, sales of petrol and diesel amount to about 23 billion liters per year.
A permanent reduction of R1.50 in fuel tax would cost the government R34.5 billion annually or, alternatively, force it to raise taxes elsewhere.
One can forget about the reduction of the second largest tariff – R2.18 which goes to the Road Accident Fund (RAF). RAF is bankrupt and requires a percentage of it.
Inflation
Unfortunately, paying more for fuel is not the only bad news. Rising fuel costs are also a major cause of rising consumer prices.
Statistics SA noted in its monthly inflation report for the last two years that fuel prices have contributed significantly to inflation. Despite the low weight of fuel in the consumer price index of only 4.8%, it was still the biggest contributor to inflation in April, according to data from the latest SA Inflation Report.
Statistics SA noted in its inflation report released on Wednesday that transportation grew 14.7% year-on-year and contributed two percentage points to the 5.9% inflation rate.
The effect of higher fuel prices is felt in other prices like food.
The simple fact is that farmers use a lot of diesel to produce food and they use more to get it to market, where retailers pick it up in their trucks to deliver to local outlets.
Food inflation is estimated to have risen 6%, accounting for a percentage of the overall 5.9%. Housing and utilities grew 4.8% year-on-year and contributed 1.2 percentage points.
Momentum Investments economist Sanisha Pakirisami said in an analysis of the latest inflation figures that it is noteworthy that prices of 38% of the weighted inflation basket products have risen by more than 6% in April. “This was the highest ratio since May 2017,” he says.
Interest rate
Pakirisami said higher oil prices, potential feed-through in food prices and an accelerated hiking cycle around the world would help further normalize local interest rates to reduce inflation expectations.
“The sell-off in local currencies and fears of higher underlying inflation have shifted the consensus towards the expectation of a 50 basis point higher interest rate hike at the upcoming May rate-setting meeting,” he said.
We can only hope that the Reserve Bank’s Monetary Policy Committee (MPC) will consider that rising prices are due to external factors – not resolved by the rise in local interest rates – and will keep the rate at a minimum.