The South African Reserve Bank’s (SARB) Monetary Policy Committee last month hiked the repo rate by 50 basis points to 4.75% – its biggest margin in more than six years – in an effort to combat rising inflation.
The decision marked the fourth time in a row that South Africa’s central bank increased its main lending rate.
And the Bureau of Economic Research (BER) forecasts much tougher times ahead. Inflation, it said in a research note on Monday (6 June), is still set to come out higher in 2022 than it previously estimated. SA retail prices are set to increase even further, especially on the food price front. “We now see consumer inflation averaging 6.1% in 2022, with headline CPI likely peaking above 6.5% in June.
“This does add to the risk that the SA Reserve Bank (SARB) may feel compelled to hike its repo rate by another 50 basis points (bps) next month, but for now we stick with the forecast for a 25bps hike, albeit that this is a low conviction call, said the BER.
Living costs in South Africa, and across the globe have soared post the pandemic crisis. Consumers are having to dig into their savings and cut back on many essential items to get through each month.
Material shortages have driven prices up, while shipping prices have also surged post the pandemic. Supply chains in the country have also broken in recent months, and together, with the rising cost of oil, electricity, and food, have all pushed up the cost of living substantially.
The latest Household Affordability Index by the Pietermaritzburg Economic Justice & Dignity group (PMBEJD) for May showed how prices continue to rise:
- Month-on-month: The average household food basket increased by R66.96 (1.5%) in April to R4,609 in May 2022.
- Year-on-year: The average household food basket increased by R472.78 (11.4%) from R4,137 in May to R4,609 in May 2022.
According to measurement and data analytics company, NielsenIQ, almost 60% of the top consumer goods product categories experienced price increases ahead of Consumer Price Inflation (CPI) during the fourth quarter, 2021. As a result, shoppers have become masters of mindful shopping and restraint.
The group’s Retailer Measurement Service data found that 48% of the top consumer goods categories that generate more than 80% of tracked sales saw an average pack price increase of between 5% and 11%, while 9% of those categories saw an increase well beyond 11%.
NielsenIQ South Africa MD, Ged Nooy, said: “Having gone through a prolonged period of financial challenge, what is clear is that we have returned to a time of austerity shopping much like that experienced during and after the Second World War. South African shoppers are becoming the masters of mindful shopping and restraint and the next three to six months will therefore be a critical time to have a clear understanding and tactics in place for price and promotional plans across an extended time horizon.”
Of the categories that have seen the highest overall price increase above 20%, cooking oils stand out with the highest price increase (25%) among all the sub-categories analyzed due to issues such as drought and other key input costs.
“But cooking oils have only seen a marginal drop in volume sales despite the categories’ steep price increase pointing to the extent to which cooking oil is a necessity,” it said.
Frozen chicken saw a 14.7% increase in price, and has been dropped as a staple as a result, the data specialist said.
“In addition, other meat sources such as Vienna sausages and bacon have both seen a significant price per pack increase and a corresponding drop in both pack and volume sales. With an average pack price of more than R40, bacon has quite simply become a luxury with consumers buying it on occasion or dropping it from their baskets entirely.
An ongoing consumer pulse study by consumer credit reporting agency TransUnion, for the first quarter of 2022, showed that the majority of consumers said they’re making changes to their purchasing behaviour because of inflation. More than half (57%) of households said they cut back on discretionary spending over the past few months.
Changes to household budget in the last three months
The expected change in household spending over the next three months