The effects of fuel prices on the economy
The year started on a good note with price cuts of more than R2 per litre for petrol and diesel in January. However, in February and March motorists were hit with hikes. With inflation still on the rise, there will be no reprieve for consumers with another rate hike predicted for later this month as stipulated by the Governor of the South African Reserve Bank, Lesetja Kganyago. The good news is that, we are at least edging closer to April’s excitement about the price changes of petrol and diesel. However, the catch is that there will be an increase of R0.30 in petrol prices, with a decrease of R0.15 for diesel. The stipulated fuel price adjustments are merely predictions made by Central Energy Fund (CEF) which are not law and may change faster than the wind. The CEF is a state-owned energy company which reports to the Department of Energy. Its function is to contribute to the security of the energy supply of South Africa as well as that of the sub-Saharan African region. It is also involved in searching for appropriate energy solutions to meet the needs of both South Africa and the sub-Saharan African region. This includes oil, gas, electrical power, solar energy, low-smoke fuels, biomass, wind and renewable energy sources.
The true deciders of the price, the Department of Energy, decide on the final cost. The fuel predictions for April 2023 are as follows:
- Petrol 95: increase of 1 cent per litre (R0.01)
- Petrol 93: decrease of 1 cent per litre (R0.01)
- Diesel 0.05%: decrease of 55 cents per litre (R0.55)
- Diesel 0.005%: decrease of 56 cents per litre (R0.56)
- Illuminating Paraffin: decrease of 113 cents per litre (R1.13)
This is preliminary data based on the current oil price and rand-dollar exchange rate, but could change before month end, said the CEF. The weakness of the rand has an effect on the changes of fuel prices. Factors that weaken the rand are: the dollar trading stronger, local factors like persistent loadshedding and South Africa being greylisted (increasing the risk of trade) are being priced into markets.
The effects of fuel prices on the economy
The effects of fuel prices on the economy
The effects of fuel prices on the economy
Loadshedding is not the only issue that needs to be mitigated. Businesses as well as the consumers that are dependent on those businesses are strongly affected by the increase and decrease of fuel prices. With regards to the fuel price increase, it calls for an urgent intervention as it shows inflation spiralling out of control. In Gauteng, consumers will pay more than R26 per litre, which paints an disturbing picture regarding transport cost and the overall cost of living. Since the beginning of the year, fuel prices have spiralled out of control. There has been a call for intervention on the government, not only by United Association of South Africa (UASA) but also by consumers. Though there has been a fuel levy relief for the past two months, what is needed is a permanent solution to this monthly crisis. As South Africans, we cannot keep pleading with government each month on the same challenge.
The fuel increase has a strong impact on consumers’ pockets as the current cost of living makes it challenging for people to manage their finances. 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. The increase of fuel prices has motorists feeling uncertain about what the next few months have in store. It also creates uncertainty around the price of food and other commodities. Consumers will have to tighten their belt on shopping by spending money mainly on their necessities.
The price of fuel has an impact on businesses as well. Ultimately the price increase of fuel will result in even the price of transport going up. This means that goods being transported by road will now cost you more. The fuel price increase will also have an impact on employees traveling to work. For many “the hybrid and work from home” was seen as a relief in the tough economic times without having to fill up the tank in a bid to drive to work. But now that Covid-19 regulations have been relaxed there are more staff getting to work using their vehicles.
Businesses would need to look at an alternative to stay ahead of the economic turbulence that the fluctuating fuel price brings with it. Here are some ways a business can improve its services to its customers as well as improve its operations:
- Tighten the budget on unnecessary travel. As much as companies need to get their goods delivered and they need to collect stock from suppliers. It is time to re-evaluate the traveling taking place in your business. Instead of making supplier trips daily cut it down to once or twice a week. The same can be said for delivery services that are being offered. If you offer delivery on goods to your customers, try to change it from daily to perhaps once or twice a week. Ensure that the delivery is worth the amount the customer has purchased for.
- If it is possible, allow staff members to continue working from home. This might be a good idea for bigger businesses. The daily commute could be the reason why staff members might feel challenged to come to work. The price in petrol increases will put employees under pressure and as a result they might not be performing their best. Offering the team an alternative to “hybrid or work from home” might be a solution to keep the staff morale up.
- Try to relook at virtual interactions for meetings and client interactions. Instead of having sit down meetings at offices outside your workspace that might require you to drive out, try to schedule them virtually. It is important to monitor and maintain resources in the businesses, but it is also essential to manage those resources correctly. Try to prevent unnecessary trips and look at moving your operations more digitally to improve the use of resources in your business.
The price of petrol and diesel is a critical factor for many people, as these fuels power much of our transportation and industries. When the price of fuel decreases, it can have significant effects on the economy, consumers as well as businesses. These effects are as follows:
- Lower Transportation Costs: One of the most immediate effects of a decrease in petrol and diesel prices is the reduction in transportation costs. This can benefit both consumers and businesses. The advantage is that consumers will save on daily commute, whilst businesses reduce their transportation costs leading to lower prices for goods and services. The reduction of transportation costs can also help boost the economy in the sense that businesses will have more money to invest in other areas.
- Increase in Disposable Income: A decrease in petrol and fuel prices can also result in an increase in disposable income for consumers. This means that people will have more money to spend on other things besides their necessities. This leads to an increase in consumer spending which can stimulate the economy. The extra spending benefits, as they have more customers with disposable income to spend.
- Reduction in Inflation: Another effect is a reduction in inflation. Transportation costs make up a significant part of the overall cost of goods and services. When transportation costs decrease, the prices of goods and services can also decrease, leading to a reduction in inflation. This is particularly beneficial for people with fixed incomes, as their purchasing power can increase.
- Decrease in Revenue for Oil Producing Countries: The decrease in petrol and diesel prices can also have negative effects, particularly for oil producing countries. These countries rely heavily on the sale of oil to generate an income. When the decrease of oil prices transpires, their revenue can also decrease which then results to economic challenges. This can have knock-on effects on other industries and the overall global economy.
- Swift Towards Alternative Fuels: A decrease in petrol and diesel prices can lead to a swift towards alternative fuels. However, when petrol and diesel prices decrease, the incentive to switch to alternative fuels may also decrease. Nonetheless, environmental concerns and government policies promoting the use of alternative fuels can still be powerful motivators for individuals and businesses to make the switch.
The effects of a decrease in petrol and diesel prices is complex and varied, depending on a range of factors, including the state of the economy, global oil prices, and government policies. While a decrease in petrol and diesel prices can have positive effects on consumers, it can also have negative effects on oil producing countries. Ultimately, the long-term effects of a decrease in petrol and diesel prices will depend on how individuals and consumers respond to change, and the policies put in place to manage the transition to alternative fuels.
