The South African Federation of Trade Unions (SAFTU) welcomes the decrease in fuel prices as of today (05 June 2024), even though it will bring little to no relief for the people. The prices of both petrol and diesel are still elevated 45% higher than they were before the Russia-Ukraine conflict escalated in 2022.
The South African economy will now see a R1.24 decrease in both 93 and 95 octane petrol, a R1.18 decrease in 0.05% sulphur diesel, a R1.08 decrease in 0.005% sulphur diesel, a R1.07 decrease in the single maximum national retail price for illuminating paraffin, and a R1.35 decrease in the maximum LP gas retail price.
These reductions are largely due to a favourable Rand/US Dollar exchange rate, which averaged 18.4664 compared to the previous periodโs 18.9036. The Rand/Dollar exchange has a firm influence on the prices of imported goods, particularly products of commodities such as oil because they are sold globally based on a US dollar-denominated price.
The changes to the monetary policy in 1995 and 1996, which repealed exchange controls and allowed for free convertibility of the Rand, exposed the Rand to explosive fluctuations against the US dollar. Though this depreciation may have been welcomed by the government for its export-oriented strategy during GEAR years, today the depreciation of the Rand is a constant concern and fatal as it exposes the country to imported inflation, mainly through oil.
The decrease in fuel prices can positively impact the prices of goods and services, as transportation costs are a significant component of input expenses for businesses. Lower fuel prices can lead to reduced costs for transporting goods, which can in turn, reduce prices for consumers. However, this will not immediately set in. It will probably start trickling in once the decline of petrol and diesel prices in the upcoming months is consistent. In other words, working-class households will still face higher prices of consumer goods in which an average basket of household food grocery is over R5 300, and a unit cost of electricity is over R2.
Despite this reduction in fuel prices, South Africans continue to face a significant challenge of higher interest rates. The current prime lending rate stands at 11.75%, which has increased the cost of borrowing for businesses and households. High interest rates mean higher monthly payments on loans and credit, leading to increased financial stress for many families. For small businesses, the high cost of debt can be crippling. Many small businesses are struggling to keep up with their loan repayments, and some are being forced to close their doors.
Combined with the high interest rates and load-shedding that is said to return in the future according to energy analysts, high diesel/petrol prices are devastating to small businesses and households.
