Finance minister Godongwana sends warning to South African households

Inflation is expected to rise to 4.5 % in 2021 due to pressures from food and energy prices, the National Treasury said on Thursday (11 November).

Tabling the Medium-Term Budget Policy Statement (MTBPS) in the National Assembly finance minister Enoch Godongwana said, however, that inflation is expected to remain contained over a three-year period.

Inflation refers to an increase in the general level of prices.

“Inflation is projected to reach 4.5 % in 2021, reflecting upward pressure from non-core inflation – specifically food and energy prices – while core inflation remains subdued.

“Beyond 2021, inflation is expected to remain well contained within the target range, approaching 4.5 % in the outer years. Risks to the inflation outlook are primarily in the near term and assessed to the upside, mainly stemming from non-core inflation.”

Household consumption expected to grow

Following a Coronavirus-induced decline in 2020, the National Treasury said household consumption is expected to grow by 5.7 % in 2021.

“It is supported by improved earnings and growing credit extension, which is linked to low-interest rates. Nonetheless, the value of household consumption remains 1.4 % below pre-pandemic levels, weighed down by lower spending on semidurable goods such as clothing.”

National Treasury said the Covid-19 lockdowns disproportionately affected lower-income households. “While 94 % of workers with graduate qualifications reported receiving their full salaries in the second quarter of 2021, only 86 % of workers with matric or less reported receiving the same.

“More than three-quarters of post-pandemic job losses have been in lower-earning positions. Furthermore, fewer than 8% of employees in these positions were able to work from home during lockdown periods.”

National Treasury said the easing of lockdown restrictions and the reinstatement of the special Covid-19 social relief of distress grant until March 2022 will support spending for lower-income households in particular through the rest of 2021.

“Over the [next three years], persistently high unemployment will continue to weigh on the recovery. Renewed restrictions in response to additional waves of Covid-19 infections would pose a significant downside risk to household incomes and spending.”

Treasury’s warning comes at a time when the country’s fuel prices are at record highs, and heading towards R20 per litre for petrol, unemployment is at a record high, electricity prices continue to rise well above inflation, despite constant blackouts, and food prices continue to rise.

Read: South Africa’s finance minister critical of government spending

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Finance minister Godongwana sends warning to South African households