Beware of the big bad hike

Article By: Meriza La Key

Wed, 20 Apr 2011 7:33
Iafrica.com News - http://business.iafrica.com/features/723065.html

After suffering the blow of a devastating recession in 2008/09, the South African consumer was spoiled for choice as the Reserve Bank dropped interest rates to record lows. But the good times are set to come to a halt with some economists predicting a rise in interest rates as early as the last quarter of 2011.
In addition to the predicted rise in interest rates, consumers also face a wave of other steep increases. We take a look at the predicted hikes.

Petrol price

The global oil price has jumped by more than 20 percent since the beginning of the year and local motorists are unable to ignore the pinch at the pump. Since January, the price of petrol has increased by R1.51, diesel jumped R1.86, while more hikes are expected amid fears of oil supply disruptions in Middle East and North Africa. Currently, you'll have to fork out R9.96 for a litre of 95 octane unleaded petrol in Gauteng. Economists predict petrol to jump above the R10/litre level in the coming months.
Month on month petrol price hikes:

• January 2011 — 28 cents (petrol), 23 cents (diesel)
• February 2011 — 26 cents (petrol), 30 cents (diesel)
• March 2011 — 43 cents (petrol), 63 cents (diesel
• April 2011 — 54 cents (petrol), 70.4 (diesel)

Electricity
Electricity parastatal Eskom has received its second of three-annual power tariff hikes on 1 April as granted by Nersa in 2010. However, the majority of consumers who buy power from the municipality will only feel the bite from 1 July this year. By mid-2012, power prices would have rallied a total of 110.5 percent in the past four years.
Annual electricity tariff hikes

• 2009 - 27.5 percent
• 2010 - 31.3 percent
• 2011 - 25.8 percent
• 2012 - 25.9 percent

Food
The South African consumer has been largely sheltered by global food hikes due to a strong rand but increases in the petrol and electricity prices are expected to weigh on food prices in the coming months. South African food inflation rose by 3.5 percent in February, while the World Bank reported that global food inflation remained high at 36 percent year on year in March, compared with 37 percent year on year in February.
Tolls
Gauteng motorists face a triple whammy with government's proposed toll tariff hike, which is expected to come into effect in July. Studies had shown that the tolls could increase freight transport costs by more than 20 percent, while the ordinary motorist can expect to fork out an additional R1000 for monthly toll fees. The average South African commuter spends about 60 percent of his or her salary on transport costs.

Inflation

The domino effect from the range of increases will weigh on the country's consumer price index (CPI). Petrol weighs nearly four percent on South Africa's CPI, food weighs more than 14 percent, with electricity around 1.87 percent. Economists at Standard Bank predict South Africa's inflation to average at 4.5 percent in 2011 from 4.3 percent in 2010. Inflation is expected to breach the Reserve Bank's 3 to 6 percent target range by the first half of 2012.

Regardless of how you look at it, the South African consumer will most likely be worse off by year-end than in December 2010. And the bad news is that it's expected to get even worse by 2012. Tighten those belts because times are certainly a 'changing.