South Africa

South African inflation warning as fuel price increases bite

The increased cost of fuel will severely impact the road freight industry this year, which will have a domino effect on prices in other sectors, pushing inflation higher.

This is according to Road Freight Association CEO Gavin Kelly, who told eNCA that recent fuel price increases will inevitably increase the cost of products transported by roads.

“When the fuel price climbs, that means you and I are going to pay more for the things that are transported by road. That’s just the nature of things,” he said.

“We’re going to see price increases starting to happen, and it’s going to have an effect on inflation which is what we were hoping wasn’t going to happen.”

Fuel prices have increased significantly since the start of the year, with petrol prices rising by 14.6%. Diesel, meanwhile, has increased by 8.7% despite consecutive cuts in the first half of 2023.

The fuel price increased significantly at the start of September, and inland 95 octane petrol costs R24.54/litre, while at the coast, it costs R23.82/litre, factoring in the slate levy and other expenses. Diesel was hiked by between R2.76 and R2.84 a litre.

There are also more price increases expected in October and potentially later in the year.

Kelly said fuel now constitutes 55% of the operational cost of moving a truck, and the industry has seen a 6.3% increase month-on-month in terms of fuel costs.

“Obviously, that’s going to factor into the delivery costs and what you and I will pay at a retail store.”

He said these costs will have to be passed on to consumers, as truck operators and other supply chain roleplayers need the capital to keep buying fuel.

He explained that many transporters do not get paid immediately for a specific leg of a delivery. There is usually a 30-, 60- or even 90-day delay with payments.

“So especially small transporters need to find the cash to keep that transport going,” he explained.

Road Freight Association CEO Gavin Kelly
Road Freight Association CEO Gavin Kelly

Interest rate implications

Absa also recently warned that there are upside risks to its September headline consumer price index (CPI) inflation forecast due to high fuel prices, which could see the South African Reserve Bank (SARB) implement another interest rate hike. 

At its latest Monetary Policy Committee (MPC) meeting, the SARB elected to pause the interest rate hiking cycle that has been ongoing since November 2021.

This decision came in light of South Africa’s June CPI inflation reaching its lowest level in months and falling within the SARB’s target inflation range of 3% to 6%.

However, the MPC warned that this was merely a pause in the hiking cycle rather than the end, and it would remain dependent on data for future decisions.

While June’s inflation reading was positive, many experts are concerned that this trend will be short-lived.

Absa recently revised its expectations for September’s headline CPI inflation from 5.2% year-on-year to 5.6% year-on-year in light of the rising fuel costs in September.

Absa explained that, given the weights of petrol and diesel in the CPI basket, fuel price hikes in line with current under-recovery rates would imply a sharp rise of 8.3% month-on-month in the CPI fuel price index in September.


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