Big petrol price cut clipped by hike in electricity costs

Although petrol and diesel costs will be dropping for the first time in sixth months, consumers have little to celebrate as electricity tariffs start to kick in from Monday July, 1.

Petrol 95 will fall by 95 cents a litre (c/l) and 93 octane by 96c/l as of midnight on Tuesday.

Diesel (0.05% sulphur) will decrease by 74c/l and diesel (0.005% sulphur) will by 75c/l.

If price reductions are sustained, it will have a beneficial effect for all consumers, SA National Consumer Union (Sancu) deputy chairperson Clif Johnston told Fin24.

“Consumers buying petrol, diesel, paraffin and gas will benefit immediately – for example refuelling a typical car should work out some R30-R40 cheaper after the reduction.”  

However, he noted that other consumers will not be so lucky as bus and taxi fares are unlikely to go down.  

“Service providers tend to cash in on cost reductions rather than to pass the savings on to consumers. In the longer run a lower fuel price should mean that public transport prices, and indeed prices of general goods and services, should not increase as much as if the current fuel prices were to be sustained,” said Johnston.  

Sancu urged consumers to work out a budget and to spend wisely.

However, economists says the reduction in fuel prices serves to neutralise the costs of the increase in electricity tariffs.

“The decrease in fuel certainly comes as a relief without a doubt for consumers following the tightening of the screws on them over the past few years due to low economic growth and the higher taxes and the fear of retrenchment in a weak economy,” director and chief economist at Econometrix, Azar Jammine told Fin24.

He said what this amounts to is a decrease of around 6% in the price of petrol and diesel, but this accounts for about 4.5% of disposable income of most people.

“Essentially it will reduce the cost of living by R2.50 for every R1000 that people have.”

Jammine pointed out the difference is that while electricity tariffs will remain in place for the whole year, petrol and diesel prices are volatile.

Economist Mike Schüssler told Fin24 the decrease in fuel costs is good news and might strengthen the case for interest rates cuts as it helps to stabilise the inflation rate which was at 4.5% last month.

“The problem however is the electricity price increase that will come into effect tomorrow for most municipalities so it negates the petrol price drop.”