Tuesday, January 18

Record Fuel and Food Prices Threaten Consumers’ Pockets


The latest Household Affordability Index from the Pietermaritzburg Economic Justice & Dignity Group (PMBEJD) shows that rising fuel prices continue to drive food price increases.

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The index tracks price fluctuations across various retail brands in a household food basket that comprises staples such as cornmeal, rice, vegetables, milk, flour, sugar, rice, and cooking oil.

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The basket increased 6.3% to R4 272.44 YoY in November 2021 from R4 018.25.

The latest Consumer Price Index (CPI) from South Africa Statistics for October 2021 reveals that headline inflation is 5% and CPI food inflation is 6.7%. The producer price index for October shows that agricultural inflation was 8.7%.

Multiple factors

The PMBEJD says that extreme food price volatility at the moment is driven by steeper increases in fuel prices, high transportation costs, and a weakening rand, substantially increasing the costs of agriculture already that a very high proportion of inputs are imported.

“The recent spike in international crude prices with Brent crude averaging US $ 82.50 / barrel, coupled with the sharp depreciation of the rand exchange rate to R15.85 / US $ led to the latest upward revision of fuel prices, “says Paul. Makube, Senior Agricultural Economist at FNB Agri-Business.

“This occurs in the context of a sharp increase in input costs [in] mainly fertilizers, pesticides and herbicides, driven by a combination of global supply shortages and the weakening of the exchange rate of the rand against the US dollar.

“Obviously, this is not good news from an agricultural perspective, given the already high costs of inputs,” says Makube.

“Increased activity in terms of planting, transportation of production inputs, distribution of products as in the case of horticulture and livestock, as well as harvesting, will attract additional costs that will negatively affect the profit prospects for farmers in next year, despite the current strength in commodity prices. ”

Makube says that profit margins are gradually shrinking and that it will be a challenge for farmers to continue absorbing costs in the medium term if the situation does not improve.

Transport cost

According to the CEO of the Road Freight Association, Gavin Kelly, the upward trajectory of oil and food prices will affect the pockets of consumers, as it will also increase the cost of transporting goods.

“The impact of the increase in the price of fuel will obviously affect the price of moving goods,” he says.

“So the rate, or the rate that carriers would charge someone to move something, be it a truck full of granite, stones, or consumable goods like … food or medicine, the rate of movement will increase due to the price of fuel. [has] increased and, unfortunately, carriers cannot absorb those increases as it is a significant part of their operating expenses. ”

Carriers will have to pass that cost on to their customers, which means consumers will pay more for products on the shelves or to move them, Kelly says.

“That will be the nature of the game.”

Commenting on the recent increase in fuel prices, economist Mike Schüssler says he believes that R20 / liter “is a psychological level and that it may lead to consumers not spending as much as they would under normal circumstances … it will affect confidence. of the consumer “.

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“I have no doubt that we will see a small downward movement in consumer confidence,” says Schüssler.

SA consumers among the most anxious in the world

According to the latest from Deloitte Global consumer tracker status – which measured consumer confidence in 23 countries in October – South Africans are the fourth most financially anxious consumer globally.

This is due to the current record high prices for fuel and food, with 86% of respondents saying they are now most concerned about inflation in the prices of common goods, with the greatest concern around groceries.

The tracker found that concerns about rising product prices are nearly 20 points above the world average, and 78% of South Africans believe prices are much higher now compared to last month.

With these concerns, and “given the context of the new Omicron variant, this puts a gray cloud over pent-up demand from South Africans, the desire to socialize, and resume traditional spending habits during the holiday season,” says Rodger George, Africa’s industry leading consumer at Deloitte.

According to the survey, South Africans are still as concerned as they have been during the pandemic about their savings balances, with 79% of those surveyed taking notice.

Retail impact

There has also been an increase in the number of respondents saying they are delaying large purchases that they would have otherwise made, rising to 64% from 51% last year.

Six out of 10 respondents are concerned about their credit card balances and 39% are concerned that they will not be able to make the next payments, a figure that is 10 percentage points higher than the world average.

“South Africans remain inherently optimistic about their long-term future, anticipating signs of improvement,” says George.

“With that said, we anticipate that retailers are in for a difficult period this holiday season.

“Retailers must be clear about their value offering and their proposition to consumers. They need to focus on customer experience, product variety, and cross-channel compliance and also focus on categories that promote experiences like wellness, food, and celebrations. ”

Palesa Mofokeng is a Moneyweb intern.


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