South African consumers and businesses face a flurry of price increases in the coming weeks as a combination of global factors and local changes take effect.
Analysts have warned that South Africans have increasingly relied on credit over the pandemic period to make ends meet, with the coming hikes likely to place increasing strain on finances.
“Two years after the pandemic first officially hit our shores, Covid-19 seemed to create somewhat of a credit bubble,” says Janine Horn, a financial adviser at Momentum.
“Our month-to-month relationship with interest rates and inflation was disrupted, and we lived in limbo for a while. All of a sudden, prices have skyrocketed as demand for goods outstrips the capacity of a global supply chain.”
This Covid-19 bubble is about to burst, and consumers are now facing the realities of rampant inflation growth globally, said Horn.
“In other words, as prices go up, so too does inflation. And as it gets harder to maintain a lifestyle, people dip into their credit cards, which only exacerbates the problem as one of the methods to curb inflation is to make the cost of credit more expensive. We are now sitting in a vicious cycle of cost and we need to come to terms with reality before it’s too late.”
Below are some of the key price hikes and expenses to look out for in South Africa over the coming months.
Petrol (from March)
Mid-month petrol price data from the Central Energy Fund shows that the price of petrol and diesel are both likely to increase by more than R1.20/litre in March.
However, Russia’s attack on Ukraine this week has thrown the global market into disarray with both the rand and global oil prices pointing to even higher increases.
Should current market conditions persist and these increases be realised, the hikes would see fuel prices pushed to record highs.
“The petrol price, already at R20/litre, could jump to R25/litre in the near term. A R1.26/litre increase is building for March – a figure that would be would be significantly higher were it not for some rand strength earlier in the month,” said Annabel Bishop, chief economist at Investec in a research note this week.
Wages (from March)
South Africa’s new minimum wage will take effect from 1 March 2022.
In a gazette published on 7 February, labour minister Thulas Nxesi said that the national minimum wage is now R23.19 for each ordinary hour worked. This represents an increase of 6.9% from the minimum wage set in 2021.
Unlike in previous years, no specific worker groups have been provided exceptions, with the minimum wages for domestic workers and farmworkers now also set at R23.19 for each ordinary hour worked as part of a planned equalisation push. This represents a 21.5% increase for domestic workers.
Electricity (from April)
The National Energy Regulator of South Africa (Nersa) has approved a 9.6% tariff increase for Eskom.
In a presentation on Thursday (24 February), the national energy regulator’s chairperson Nhlanhla Gumede said this figure constitutes a 3.49% increase for the 2022/23 year, alongside legacy costs from previous years.
The increase will take effect from 1 April 2022 for Eskom customers. This is separate from the increase that municipal customers can expect to pay which will take effect from 1 July 2022.
Food and inflation (general)
South Africa’s increasing petrol price is likely to exert upward pressure on key sectors in the economy, including transport, driving food costs and general inflation higher.
Headline inflation is projected at 4.8% in 2022 and 4.4% in 2023, National Treasury said on Wednesday.
“This is attributed to food and energy prices, especially municipal rates from rising electricity prices, high domestic food inflation and elevated fuel prices, which are expected to be the key sources of inflationary pressure in 2022.
“Fuel prices were up 40.4% in the year to December 2021 owing to higher global crude oil prices.”