South African consumers face a financial storm due to escalating tensions between the US and Iran, with rising fuel prices and inflation threatening economic stability.
Image: Freepik
South African consumers are about to head into a financial storm as a direct result from the war between the United States (US) and Iran.
While currently in a ceasefire, the peace talks between the two nations kicked off with a rocky start,, with both countries declaring the talks had collapsed and then as days passed, the US indicated a willingness to continue negotions.
Global markets reacted to every development that took place and will continue to do so, along with the oil price.
With the first wave of effects hitting South Africans via the fuel price increases experienced in April, it's beginning to filter through to major sectors of the economy, such as agriculture, with latest Absa AgriTrends report warning of escalating input costs, supply chain disruptions, and mounting pressure on both producers and consumers.
Inflation in the country has also been forecast to spike, which spells bad news for consumers.
Frank Blackmore, Lead Economist at KPMG South Africa, told Business Report that the depreciation of the South African rand is exacerbating the situation, with oil prices surging due to geopolitical tensions.
“In South Africa, we've seen a depreciation of the exchange rate. Both of those influence transport prices, transport costs form about 14% of the CPI basket and the impact of the ongoing war against Iran is going to mean that your fuel costs, comprised of diesel and petrol, in combination in your CPI index, will see petrol pump prices increase by about 1.1% to 1.2%,” Blackmore said.
He added that fuel price hikes are likely to affect the production side of the economy as well.
"The response from producers, who carry a higher weighting in the Consumer Price Index (CPI) for petrol (4.4%) and diesel (4.2%), suggests that they will not absorb these increased costs. Instead, producers are expected to pass these inflationary pressures onto consumers, affecting the overall cost of goods and services," Blackmore said.
In its fifth annual report released on Tuesday, Absa AgriBusiness said the ongoing conflict is already affecting the local agricultural value chain through higher fertiliser and fuel costs, as well as logistical challenges linked to global trade routes.
According to Loffie Brandt, senior executive at Absa AgriBusiness, the most immediate impact is being felt through rising input prices.
Fertiliser costs, in particular, have surged sharply, with urea—a key input used to boost crop yields—reaching its highest levels in years, trading above $650 (R10 638) by early April.
Civil society groups also sounded alarm bells over the impact of rising fuel prices on food affordability, warning that the knock-on effects will deepen financial strain on South African households, particularly the most vulnerable.
Groups including the Pietermaritzburg Economic Justice and Dignity Group (PMBEJD) say recent increases in diesel and petrol costs are likely to drive up food prices in the coming months, reversing recent gains in affordability and placing additional pressure on already stretched consumers.
Evashnee Naidu, KwaZulu-Natal regional manager of Black Sash, on Tuesday said there is growing concern about further fuel hikes, especially given ongoing global instability.
“Particularly the steep increase in diesel is concerning as this impacts the transport of goods within South Africa like food items," she said.
"Given the ongoing global crisis and the possibility that this might not be resolved in the short term, it is the households of the most impoverished and social grant recipients who will feel the brunt and impact of this.”
Neil Roets, CEO of Debt Rescue said that while the potential easing of tensions between the US and Iran, along with the reopening of the Strait of Hormuz, may bring some stability to global oil markets, the impact on South African consumers must be understood against the backdrop of the significant fuel increases already experienced locally.
Roets said, "South Africans have just absorbed a substantial fuel price shock in April, with sharp increases across petrol, diesel and other fuel categories. While the temporary reduction in the fuel levy provided some short-term relief, it only softened what would have been an even more severe increase. The reality is that households are now dealing with a much higher cost base."
Roets said that the effects of the increases extend far beyond the direct costs of the fuel price.
"We at Debt Rescue are seeing that fuel increases of this magnitude, particularly in diesel, do not remain isolated to the cost of filling up a vehicle. Diesel is a critical input in transport and logistics, which means any sharp increase is felt almost immediately across the supply chain. The cost of moving goods rises, and that inevitably translates into higher prices for food, retail products and other everyday essentials, further stretching already constrained household budgets," Roets told Business Report.
"This is not just about what happens next in global markets. It is about the cumulative impact that has already taken place. While any move towards stability is welcome, South African consumers remain under significant financial strain, and that pressure is unlikely to ease in the short term," Roets said.
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