South Africa’s disposable income squeezed further by latest hikes: FNB

The rising cost of living, record petrol price increases and higher interest rates all point to middle-class South Africans having less disposable income in the coming months, says FNB.

Commenting on its latest price changes, released on Wednesday, the bank noted that the rising cost of living played a key part in its decision to freeze or introduce below-inflation increases on its accounts.

The bank said that one of its key strategies is to focus its rewards on providing value to this segment, with most middle-class South Africans typically prioritising their money on groceries, fuel and transport costs, as well as telco and data fees.

The bank cited data published in May which shows that it takes an average of five days for a middle-income consumer to spend up to 80% of their monthly salary. This suggests that the average middle-income consumer, earning between R180,000 – R500,000 per annum, survives on 20% of their monthly salary for more than 20 days in a month.

In addition, salaried middle-income consumers with secured and unsecured credit spend, on average, 30% of their income on unsecured credit and 35% on secured credit, the lender said.

This follows similar commentary from professional services firm PwC which noted that another year of interest rate hikes will hit the buying power of South Africa’s middle-class.

As with rising inflation rates, households at different income levels will face challenges with increasing interest rates within the context of a weakened economy, the firm said.

“The expected increase in the repo rate of 100 to 125 basis points through 2022 from 2021 levels could well leave some lower-middle to middle-income households paying more for recently acquired vehicles or properties to the extent that they would be forced to ‘buy down’ or cancel other discretionary spending items such as (additional) insurance and savings products.”

Debt Rescue chief executive Neil Roets has warned that the country’s record fuel prices are also expected to push more of the country’s middle class into poverty.

“The fuel price increases will definitely worsen the over-indebtedness in South Africa, more especially because it is going to be a massive price increase. People in South Africa are already over-indebted, especially coming from Covid and the lockdown where we have seen salaries cut and job losses,” he told radio station Jacaranda.

“On top of that price increases are going to push the middle class in South Africa to poverty and making them more indebted.”

What it takes to be middle-class in South Africa right now

A new survey by consumer insights group WhyFive paints a different picture of the middle class in South Africa, with 58% of respondents saying that they have no debt or are in control of their debt and not feeling stressed.

The group said that the debt-stressed segment – around 40% of respondents – has been consistent for the last four years, pointing to a fairly stable middle-class financial position. The survey was based on 33,000 respondents from households earning more than R10,000 a month.

“What we are seeing is not a case of the entire country becoming poorer. Instead, it might be more true to say that the impact of Covid has been that some have become poorer, while others have become richer – a different dynamic. It could be said that over this past year or so, South Africa’s middle class has staged one of the greatest comebacks we’ve ever seen,” the group said.

Other positive indicators include reported car sales showing a strong recovery, banks ending 2021 with a huge increase in headline earnings, and popular retailers among the middle class also reporting growth in revenue and profits. These indicators do come off a strained prior year due to the pandemic but point to a recovery in the economy.

Employment data published by Stats SA this week also pointed to some good news in the job market, with the country adding 370,000 jobs, lowering the unemployment rate by 0.8 of a percentage point to 34.5% by the narrow definition.

Read: Here are all the new FNB banking fees for 2022/23

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South Africa’s disposable income squeezed further by latest hikes: FNB