This month’s steep fuel price increase is not just going to hit consumers hard at the pumps, but will have a knock-on effect on the prices of a number of daily goods and services, particular food.
This is because fuel price hikes lead to increases in the costs of manufacturing food and also transporting it to final distribution to consumers.
Ester Ochse, product head at FNB Integrated Advice, says foods that will specifically be affected by the increase in the cost of fuel include grains, dairy, meats, and oils.
Other costs that may be impacted are general transport prices that will be passed on to people.
“This will therefore have a general impact on consumers’ pockets at the end of the month.”
This is in addition to the direct impact of the most recent fuel price hike on motorists’ pockets, which Professor Jannie Rossouw from the Wits Business School, says was driven by two aspects:
- the increase in the price of crude oil
- the weak exchange rate of the rand
“For the latter we can blame the ANC government. A combination of inappropriate policy choices, low economic growth, weak fiscal position, and weak leadership of Mr Ramaphosa all contribute to the weak exchange rate.”
The fuel price has a direct impact on the inflation rate, he says. While higher fuel prices reflect immediately (in the next month) in the inflation rate, they also have an indirect impact over the whole value chain, from production to distribution. “
“So, food producers will suffer owing to the increase in fuel prices, which can lead to higher food prices. At the retail level, shops will be hard hit as they have to buy fuel for generators to supply electricity during periods of load shedding.”
The passing through of these input costs – as a result of fuel prices, to consumers is usually with some lag though, explains FNB senior economist Koketso Mano. This is because budgeting and pricing is done in advance, and will be based on the trend, not the monthly fluctuations.
However, a digital economy has reduced menu costs, and pass-through can now happen faster.
“We have so far seen less pass-through of the 2022 fuel and food price shocks to broader underlying/core inflation, bar items such as public transport and catering. This suggests a tightly competitive trading environment alongside a constrained consumer – limiting pricing power (precisely what the central bank intended).”
That said, producers have experienced margin compression since lockdowns, and likely have limited scope to absorb further cost pressures. Worse, Mano says this comes at a time when businesses are grappling with higher operating costs due to load shedding, logistical challenges that have shifted more distribution of goods to roads, as well as an undervalued exchange rate.
“Therefore, core inflation may have surprised to the downside, but upside risks prevail.”
For the livestock and horticulture sector, fuel is critical for transportation of produce to markets, says Paul Makube, senior agricultural economist at FNB Agri-Business
“With loadshedding now reaching Stage 6, farmers will be forced to run generators for extended periods to maintain the cold storage. A breakage in the cold chain compromises the quality and safety of perishables such as fruit, vegetables, and meat, and may further cause huge financial losses to farmers.”
Higher fuel prices may also worsen consumer inflation which has tracked back within the SARB’s target range of 3 percent to 6 percent, thus prolonging the period of elevated interest rates.
“Elevated debt serving costs for farmers have been a constraint for potential agriculture production expansion. Tight profit margins will limit the producers and processors’ capacity to absorb further cost pressures,” Makube says.
While consumers have little control over many things to do with the cost of living, Ochse says there are some actions they can take to cut down on the amount of money they spend on food, in light of the potential increase of food prices.
- Do research on where you can get the best prices for your shopping. Browsing online is cheaper than driving around
- Do a monthly shop as opposed to popping into the shops on a regular basis
- Have a shopping list and stick to it. This is vital to ensure there is no unconscious or unnecessary spend
- Create a weekly menu using items that are in the pantry and supplementing with a few fresh food products
- Follow a plant-based diet as it is both cheaper and healthier
- Cook in bulk and then freeze the meals in portions
- Make use of loyalty programmes such as eBucks. They are great ways to supplement and free up some cash. You can use them to buy groceries, fuel, or your beauties spend.
IOL Business