Abstract
One of the core objectives of economic development is to improve people’s standards of living. However, both standards of living and consumption expenditures are often determined by disposable income, crude oil prices and exchange rate volatility. The current paper employed quarterly time series data from 2002 to 2020 to analyse the responsiveness of household consumption expenditure to the petrol price, disposable income and exchange rate volatility in South African. The empirical outcome suggested that a long-run relationship exists between variables under consideration. Additionally, the current level of consumption expenditure was found to be determined by income level and exchange rate volatility whilst changes in petrol price had no significant effect on short-term consumption expenditure. Based on these findings, the study suggests that the South African policymakers and government authorities implement policies and strategies that enhance both household income and exchange rate. Those strategies may include strengthening the country’s currency, production improvement, inflation rate reduction, and the creation of job opportunities.
Highlights
The quality of life and consumption expenditure experienced by individuals are often determined by household disposable income, and the latter depends on the country’s economic growth
South Africa is not a petrol producer, these results suggest that an increase in petrol price does not impede household consumption expenditure provided that the South African currency remains strong and household income is increasing
Despite the fact that the literature represents several studies on the effect of the exchange rate, income and petrol price on household consumption expenditure, there is a shortage of studies that analyse the effect of the aforementioned variables in the South African context using a single equation
Summary
The quality of life and consumption expenditure experienced by individuals are often determined by household disposable income, and the latter depends on the country’s economic growth. The petrol price in South Africa depends on the global market’s crude oil price and the strengths or weakness of the South African currency (Rand) against global major currencies such as the US dollar, European Euro, Japanese Yen and the British Pound (Senzangakhona and Choga 2015). Both international prices of crude oil and the South African exchange rate have been fluctuating and these fluctuations led to both economic uncertainty and slow economic growth (Balcilar et al 2017; Nkomo 2006; Patel and Mah 2018). Since the exchange rate and fuel price (petrol price) are linked to the economy and income performance, and the latter is a key driver of consumption expenditure, change in these two economic indicators (petrol price and exchange rate) has significant implications on household consumption expenditure levels
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