Get ready for big price shocks in September and beyond

South Africa’s economic woes are expected to continue into the last quarter of the year – with the first major blow coming in September when petrol prices are expected to increase by as much as 60 cents a litre, hitting consumers like a ‘ton of bricks’.

The latest data from the Central Energy Fund points to an under-recovery in the fuel price of around 60 cents for both grades of petrol, and 47 cents for diesel. This is due to a combination of rising oil prices, globally, and the weakening of the rand, locally.

According to CEO of Debt Rescue, Niel Roets, all indications are that the rand will continue to weaken in the coming months, which will further increase the fuel price as well as the cost of all imported goods.

“Food inflation is also outstripping general inflation running at about 6.9%. Despite the bumper maize harvest, prices of all grains are actually expected to rise in the short-term because the new harvest prices will only feed through into the economy by next year,” Roets said.

“This (September) fuel price increase is going to hit consumers like a ton of bricks. If current trends continue we could see more of the same in October.”

State of SA’s economy

Several economists have said that South Africa is likely to escape a third quarter of economic decline – indicative that the country may be slowly pulling itself out of a recession – however, we are still on very shaky ground.

At the forefront of the country’s issues is junk status and the threat of further downgrades. Credit ratings are reflective of the overall health of a country’s economy, encompassing GDP growth, unemployment as well as the social and political issues being faced.

All but one rating agency already has South Africa in junked status, with the outlier – Moody’s – warning that a downgrade to sub-investment grade is on the cards, should the government not get a grip on its political strife ahead of the ANC’s elective conference in December.

Other persistent issues are low economic growth, and an extremely high unemployment rate – which at 27.7% is at the highest point in 14 years.

On creeping growth, a recent poll of 27 economists saw South Africa’s economy growing at no more than 0.8% in 2017, way down from the 1.5% growth expected at the start of the year. Projected growth among analysts is between 0.2% and 1.0%.

On the more positive side, the same poll showed that there is a persistent belief that the South African Reserve Bank could cut interest rates again in 2017, following a surprising cut of 25 basis points last month. This could come as soon as September, or in November, providing some relief to consumers.

Major debt problems

Despite the slight positives, South African consumers are likely to remain under pressure, with total consumer debt at R1.71 trillion (latest National Credit Regulator figure).

According to Roets, South Africa is considered to be one of the most indebted countries in the world by the World Bank.

Among 24.68 million credit-active consumers, the country has collectively notched up 9.69 million impaired records – meaning that they are three months or more in arrears with at least one of their accounts.

“We have seen an increase of over 20% over the past several months of the number of debtors approaching debt counsellors for help,” Roets said.

“Get rid of credit cards and store cards which carry very high interest rates and try and avoid borrowing money as unsecured loans that also carry extortionately high interest rates,” he said.

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