Fuel prices at tipping point - latest hike will have to be passed on to consumer

After months of increases, it's hard to imagine that businesses can keep absorbing the cost says economist Kevin Lings.

A record fuel price increase goes into effect at midnight.

South Africans will be paying R1 more for a litre of petrol from 7 April (average R17 a litre and R16.64 at the coast).

Diesel prices will go up 63-65c a litre.

RELATED: Petrol price goes up by a record R1/litre at midnight - remember to fill up!

After months of increases, fuel prices are now at a tipping point says Kevin Lings (Chief Economist at Stanlib Asset Management).

It's hard to imagine that businesses can keep absorbing the hit.

Netflorist MD Ryan Bacher says while they won't be passing the increase on to clients just yet, it will become inevitable if the fuel price doesn't come down.

The Money Show also spoke to an e-hailing service driver about the impact of the price hike.

Bolt has a minimum fare of R20 and you find clients requesting 2 kms away for a fare of R20. How do you balance it if you can drive 2 kms to go and fetch a trip for R20 and still drive another 2 kms to drop a client - 4 kms for R20! I think they just have to increase their prices.

Innocent, Bolt and Uber driver

The pressure is that, ultimately, prices broadly are going to have to go up, otherwise the business itself is at significant risk.

Kevin Lings, Chief Economist - Stanlib Asset Management

The petrol price has been going up I think every month for the last four months. Those costs had already been absorbed and it's very difficult to expect a business to now absorb another R1 a litre, so you get to that tipping point where it just simply has to be passed on and my suspicion is we're at that point now.

Kevin Lings, Chief Economist - Stanlib Asset Management

Factor in the 15% price increase in electricity and consumers are facing a double whammy in terms of essential items.

We've seen the oil price and the exchange rate play a role all through the course of the last three or four months, so we're now at a record high. Critically, if you look at the petrol price now and you measure it year on year, it's up 24%!

Kevin Lings, Chief Economist - Stanlib Asset Management

I think that is going to ripple through all of the distribution networks. Remember also that we've now got a whole lot of couriers running around and distributing once-off items where actually, the cost of delivery is quite a high percentage of the total cost of the item, making that model a lot more difficult to sustain.

Kevin Lings, Chief Economist - Stanlib Asset Management

This means it's now pretty much the highest component of our inflation basket and the element we really struggle to not consume. So it's pretty much going to hit every single consumer.

Kevin Lings, Chief Economist - Stanlib Asset Management

Listen to Lings discuss the ramifications of the fuel price hike and scroll down for more quotes:

Throw in the 15% increase in electricity and two key elements are going up quite dramatically... Factor in that most people's salaries are not going up or barely increasing by 3/4%...

Kevin Lings, Chief Economist - Stanlib Asset Management

It comes when we want to open up the economy more fully... so if the petrol price stays at these levels - or the oil price - then obviously it puts all of that at risk. It's impacting us at exactly the wrong time.

Kevin Lings, Chief Economist - Stanlib Asset Management

It also means that the Reserve Bank's pretty much got no choice but to keep interest rates on hold now, at best. Any prospect of an interest rate cut pretty much goes out of the window.

Kevin Lings, Chief Economist - Stanlib Asset Management

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