Escalating Fuel Costs Pose Risk for South African Inflation, Road Freight Industry under Stress

South Africa's fuel cost surge could trigger a surge in inflation due to knock-on effects on the road freight sector as highlighted by the Road Freight Association's CEO, Gavin Kelly. Notably, fuel price spikes will elevate the costs of road-freighted goods, placing an escalating financial burden on consumers.

Fuel prices have significantly amplified since the year's onset with petrol price swell of around 14.6% and diesel price upswing by about 8.7%, in spite of the consistent cuts in the first half of 2023. An impactful hike was also observed in early September with figures noting an inland 95 octane petrol cost at R24.54/litre and a coastal price at R23.82/litre. Diesel price witnessed a rise between R2.76 and R2.84 a litre.

Kelly stressed that a colossal 55% of a truck's operational expense now goes towards fuel, with a 6.3% industry-wide month-on-month increase. To sustain, this cost burden will inevitably transfer to consumers leading to higher retail prices. He further explained the cash crunch situation faced by small transporters who often encounter a delay in payments even up to 90 days after delivery.

Additionally, ABSA points out that this fuel price surge presents a risk to its September headline consumer price index (CPI) inflation forecast. This could force the South African Reserve Bank (SARB) to consider another interest rate hike. Despite a pause in the interest rate hiking cycle since 2021, SARB has affirmed this to be a temporary halt, implying possible hikes depending on future data. ABSA has consequently revised its September headline CPI inflation projections to 5.6% year-on-year from previously issued 5.2%, in consideration of the rising fuel costs.