The Worst is Yet to Come for South African Consumers

By Vivian Atud

The year 2015 started on a very high note for consumers in South Africa: oil prices were at record lows resulting in low petrol prices at the pumps, January also saw a decrease in consumer price inflation. The Reserve bank Monetary Policy Committee at the January MPC meeting kept interest rates unchanged, given a better inflation outlook at the time and global economic factors. There were indications that 2015 could be a great year for South African consumers. While we were still singing halleluiah and trusting that all will be well for consumers in 2015. Things have changed and are changing fast for the worst. You may be asking what I am talking about. Let me make a few points to support this hypothesis.

Firstly, as indicated by the Finance minister during the budget speech in parliament last month- petrol price will be going up from next month. This is compounded by the recent increase in petrol price by the department of mineral resources. While consumers were still trying to digest the bad news on petrol price increase by the department- the falling value of the rand has even made it worse. One may say that all gains in petrol prices to SA consumers in January have been eroded.

Secondly, the crisis at ESKOM, continue to not only affect businesses but individual households and consumers are feeling the pinch. They are being affected both directly and indirectly. While South African consumers feel that they are already paying too much for electricity, there is the possibility for further increases in prices if ESKOM were to have its way at National Energy Regulator of South Africa (NERSA). Indirectly, the increased cost of electricity is being transferred to consumers through increase prices for various goods and services impacted by the energy price hikes.

Thirdly, the Reserve bank’s monetary policy committee (MPC) warned yesterday- Thursday that there may be a need for interest rate hikes, as the outlook for inflation has worsened. These comments were a mark change in tone from two months ago (January 2015) when the MPC was at ease with rates remaining unchanged.

Though the MPC left the repo rate unchanged as expected yesterday, it said the inflation outlook had deteriorated and it would accelerate due to a weak rand, above-inflation wage settlements, accelerating food inflation and electricity tariff increases.

Reserve Bank governor Lesetja Kganyago said the scope to put interest-rate increases on hold had narrowed.

“At the same time, the growth outlook remains constrained by electricity supply concerns and low business confidence, and the risks to the growth forecast are assessed to be moderately on the downside,” he said. Persistent electricity outages had led to a downward revision of short-term potential growth to between 2% and 2.5%. All these are happening at the backdrop of increased unemployment, sundered growth forecast for South Africa.

South African Consumers need to brace themselves for even harder times ahead. If the Reserve bank gets its way and increase interest rates in the coming months, this will mean increase in cost of debts for an already over indebted South African consumer population. The upcoming increase in petrol prices will make things even worse and the poorest of the poor who spend a huge proportion of their earnings on food and transportation will be hardest hit.

Consumers need to be more cautious with spending in 2015 as the economic outlook seem to not work in their favour.

 

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