The upward pressure on food, fuel, and electricity prices will adversely impact all households during 2022. However, due to varying spending abilities and priorities, households in different expenditure deciles will be impacted differently, a new analysis by professional services firm PwC shows.
The firm noted middle to higher-income groups are re-evaluating their discretionary spending patterns and are either “buying down” or reducing insurance and savings products – especially considering that Covid-19 vaccines have alleviated some of the threat to serious illness or death.
On the other hand, households in the lower to lower-middle income categories will struggle to sustain their monthly basket of goods purchases. Given increased costs of necessities, these households will need to carefully consider the affordability of other discretionary monthly expenses, including insurance products.
Low-income households – deciles 1 and 2, based on Statistics South Africa’s latest consumer basket and income surveys – spend more than half of their money on food and non-alcoholic beverages.
This includes grain products (bread and maize) which in the coming months will cost significantly more due to higher international commodity prices. In turn, higher-income households spend a significantly smaller proportion of their money on foodstuffs.
“Households from decile 3 upwards will feel direct pressure on food budgets as well as rising electricity and transport costs. There will also be second and third-round effects from higher electricity and fuel tariffs impacting on the cost of producing/delivering other goods and services.
“Furthermore, once non-fuel prices are adjusted upwards due to an increase in fuel costs, these prices are sticky downwards and are unlikely to decline if fuel prices moderate in the future,” PwC said.
Given the consequent higher inflation, weaker external demand, and an unreliable power supply, PwC now forecasts a real GDP growth rate of 2% this year (from 2.3% previously) with continued downside risk.
Alongside this weaker economic outlook is even greater concern about the speed of the country’s jobs recovery, the firm said.
“There is little scope for South Africa’s unemployment rate to improve (decline) this year if local business sentiment is weighed down by these international factors. Furthermore, as economic growth moderates back towards 1.5% over the long-term, the unemployment rate is likely to continue higher from its current rate of 35.3%.
“A substantial and sustainable increase in economic and jobs growth is only possible if South Africa can improve on three key growth constraints: electricity reliability, workforce skills, and private sector investment.”