Home Opinion and Features Petrol price hike: It’s hitting us even if we don’t have cars

Petrol price hike: It’s hitting us even if we don’t have cars

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Petrol prices are 27% more expensive than this time last year, meaning petrol and diesel price increases are major contributors to the overall CPI index.

File picture: Karen Sandison/African News Agency (ANA)

CONSUMER prices in South Africa are rising at an alarming rate on account of the Covid-19 pandemic and Russia’s war on Ukraine.

These events have contributed to rising inflation impacting the pockets of South African consumers.

The latest data released from Statistics South Africa revealed the consumer price index (CPI) reached 6.5%, which is above the maximum 6% target of the South African Reserve Bank and the highest CPI has been since 2017.

How does fuel fit into the latest CPI increase?

The results from the latest CPI increase indicated if fuel was removed from the CPI reading, the headline rate fell to 5.1% from the 6.5% CPI total figure. Diesel increased by 8.1% from April to May alone, taking the annual increase rate to just over 45%. Petrol prices are 27% more expensive than this time last year, meaning petrol and diesel price increases are major contributors to the overall CPI index.

“The fuel increases have a strong impact on consumers’ pockets as the current cost of living makes it challenging for people to manage their finances,” says Himal Parbhoo, CEO of FNB Retail Cash Investments.

“The reality is people need to commute to work, transport their children to school and run other errands. During this time, we advise consumers to consider planning their day-to-day or weekly travel, join or start a work lift club and even pack lunch to help in saving any bit of money.”

Will fuel prices increase further?

Yes, and inflation is expected to surpass the 7% range, and the price of 93 octane petrol will rise by R2.37 per litre and 95 octane by R2.57 per litre. On the surface, a steep increase in the fuel price looks to impact those with vehicles the most. However, when digging deeper, the increase is far-reaching.

SA consumers will feel the fuel impact on their pockets. Parbhoo explained that “while SA consumers will experience a higher cost when refuelling their vehicle; the impact can also be felt by those consumers who use public transport as they will need to fork out extra for using these modes of transport. The increase also affects the logistics industry as higher logistic costs result in higher on-shelf costs of items such as food and clothing”.

The fuel price also impacts the South African saver. He added that, “To successfully save, consumers need to outperform inflation. When returns are lower than there is an increase in the cost of living, wealth is working backwards as capital balances will be able to buy less. Increasing fuel prices means higher returns need to be achieved for wealth to maintain or increase in value”.

With CPI reading 6.5% in May, savers need to ensure their money is growing at a higher rate. Traditional saving accounts may not offer high enough returns to outperform inflation, and thus alternative savings instruments like notice accounts, fixed deposits, money market accounts or funds should be considered by South African savers.

Fuel price impact on SA retirees

“We urge retirees to consider having short-term saving accounts or money market funds which they can use to contribute affordable amounts so they can have excess to money for rainy days and unexpected emergencies,” says Samukelo Zwane, head of product at FNB Wealth and Investments.

“These investments are liquid, allowing investors to access their savings quickly without affecting the value of their investments. Short-term liquidity can be used by retirees to supplement their retirement income such as when inflation drastically increases the cost of essential goods.”

Added to that, “retirees who contribute to investment-linked Living Annuities should avoid the temptation of drastically increasing their withdrawal rate to keep up with higher-than-expected increases in inflation”.

“Instead, they should aim to withdraw at a level less than the investment return generated by their investment.

“By so doing, they will not be dipping into the capital on their investments. Investments in savings accounts or money market can be used to cater for higher-than-expected inflation increases.

“When making decisions on annual withdrawal amounts, it’s important for investors to contact their financial advisers to determine the appropriate withdrawal rate.”

Zwane added that “pre-retirees are also affected by the sudden increases in prices of goods and services. A common trend amongst pre-retirees is to withdraw their pension when changing employers, instead of preserving their pension”.

“There is an opportunity cost of withdrawal from your pension when changing jobs.

“First, you will lose the compounding effect of your investment.

“Second, your saving term for retirement is reduced, which means you will have to save more in order to meet your retirement goal.

“Finally, these amounts tend to be taxed heavily, which means that you will experience a tax leakage on your investment.

“Therefore, having a savings account or money market account enables both retirees and pre-retirees to supplement their needs as well as to preserve their long-term retirement savings.

“The Russian-Ukraine war and sanctions may likely impose further increases in fuel prices through 2022. Consumers, savers, and retirees need to try and be prepared, especially when it comes to the knock-on effect of fuel prices on goods and services.

“They must use their short-term savings account and money market account to cater for higher prices of goods and services instead of tapping into their long-term investments. It is important for people to consider smart changes can be made in how they spend their money.”

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