Although consumers will have to fork out more for municipal electricity this month, they will receive a slight reprieve from today's drop in fuel prices and they should use the savings to save or cover debt, says Sanisha Packirisamy, an economist at Momentum Investments.
Packirisamy says from midnight yesterday, petrol was expected to drop by 86cents a litre, diesel by 68c and illuminating paraffin by 58c.
“As a nation, we spend a lot on fuel. In fact, according to the latest motor trade sales figures from Statistics South Africa, we're spending more on fuel than on cars,” she says.
“While petrol price drops offer some financial reprieve, it’s a good idea to prepare for potential fuel fluctuations by determining how much money you currently spend on petrol, and set aside about 10percent of this value each month as a buffer against future increases,” she says.
Packirisamy says the petrol price cut was about 6 percent.
She says motorists who drive a car with a 45-litre tank will now be paying R680 to fill up their car compared with R720 about a month ago.
“So you are effectively getting about R40 more back into your pocket. That R40 can now be used as you allocate more expenditure towards some of your necessity items - for example, it can be used for expenditure on goods and services. Consumers can also use it to buffer their savings, or it can be used to reduce their debt burden that they may be experiencing at the moment.”
Packirisamy says municipal electricity costs and rates will be going up this month.
“Generally, you've got an electricity price increase of around 13percent, property rates going up for the City of Joburg at 5.5percent, water costs going up at about 10percent, waste removal going up about 7percent,” she says.
“We've said in the past year that consumers faced quite a lot of headwinds. Consumers are basically facing the threat of job losses. They are facing a much higher tax rate. We’ve seen ‘sin taxes’ - taxes on alcohol and tobacco - going up, we've seen value-added tax up to 15 percent, and in some respects you see personal income tax brackets not being adjusted for inflation, in what we call ‘bracket creep’. That’s all caused quite a low confidence across the consumer base. And even if you look at the upper end, they have also been experiencing quite a sharp decline in growth of net wealth,” says Packirisamy.
“We know that property prices have not been doing that well in the country, because there has been a low demand and we know that the equity market has basically gone sideways for the last five years. That also hasn't helped from that side. So any little bit helps the consumer,” she says.
Packirisamy says that in cycles of low consumer demand, consumers opt for cheaper options, such as buying used vehicles instead of new.
“You find that the used vehicle market in that inflation space will be much lower than for new vehicles. So spend has been shifting in that direction. If you look at the Naamsa (the National Association of Automobile Manufacturers of South Africa) sales data that came out earlier this week, the numbers weren't that great, basically showing declines for passenger vehicles,” says Packirisamy.
She says when consumers’ disposable income is not growing in real terms, they tend to have long holding terms for durable goods.
Packirisamy advised consumers to look out for specials when buying goods and to buy in bulk to avoid impulse shopping. South Africans should save despite the tough economic environment, and younger consumers should save for their retirement from an early age.