Record fuel and food prices threaten consumers’ pockets

The latest Household Affordability Index by the Pietermaritzburg Economic Justice & Dignity Group (PMBEJD) shows that rising fuel prices continue to spark hikes in food prices.

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

The basket increased by 6.3% to R4 272.44 year-on-year in November 2021 from R4 018.25.

Statistics South Africa’s latest consumer price index (CPI) 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

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

“The recent upswing in international crude oil prices with the Brent crude averaging US$82.50/barrel, coupled with the sharp depreciation in the rand exchange rate to R15.85/US$ led to the latest upward revision to the fuel prices,” says Paul Makube, senior agricultural economist at FNB Agri-Business.

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

“This is obviously not good news from an agriculture perspective given the already high input costs,” says Makube.

“Increased activity in terms of planting, transportation of production inputs, distribution of produce as in the case of horticulture and livestock as well as harvesting, will attract additional costs which will negatively impact the profit outlook for farmers in the year ahead, despite the current strength in commodity prices.”

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

Transport costs

According to Road Freight Association CEO Gavin Kelly, the upward trajectory of oil and food prices will hurt consumers’ pockets as the cost of transporting goods will also go up.

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

“So the tariff, or the rate that transporters would charge somebody to move something – whether it is a whole truck full of granite, stones or consumable goods like … food stuffs or medicines – the rate to move that will increase because the price of fuel [has] increased and unfortunately transporters cannot absorb those increases as that is a major part of their operating expenses.”

Transporters will have to pass on that cost to their clients, which means consumers will be paying more for goods on the shelves or for moving things around, says Kelly.

“That is just going to be the nature of the game.”

Commenting on the recent fuel price increase, Economist Mike Schüssler says he thinks R20/litre “is a psychological level – and that may lead to consumers not spending as much as they would under normal circumstances … it will impact consumer confidence”.

“There’s no doubt in my mind that we will see a little bit of a downward movement in the consumers’ confidence,” says Schüssler.

SA consumers among the world’s most anxious

According to Deloitte’s latest Global State of the Consumer Tracker – which measured consumer sentiment across 23 countries in October – South Africans are the fourth most financially anxious consumers globally.

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

The tracker found that concerns about increasing prices of goods is nearly 20 points above the global average, with 78% of South Africans believing that prices are much higher now compared to last month.

With these concerns, and “given the context of the new Omicron variant, this puts a grey cloud over South Africans’ pent-up demand, desire to socialise and resume to traditional spending habits throughout the festive season,” says Rodger George, Africa consumer industry leader at Deloitte.

According to the survey, South Africans remain as concerned as they have been throughout the pandemic about their savings balances, with 79% of respondents noting this.

Retail impact

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

Six of every 10 respondents are concerned about their credit card balances and 39% are worried they might not be able to make upcoming payments, a figure that is 10 percentage points higher than the global average.

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

“That said, we anticipate that retailers are in for a difficult period over this festive season.

“Retailers should be clear on their value offering and proposition to consumers. They should focus on customer experience, product assortment and fulfilment across all channels and also focus on categories that promote experiences such as wellbeing, food and celebrations.”

Palesa Mofokeng is a Moneyweb intern.