Inflation eating away at what little income South Africans have left

 ·29 Jun 2023

New data from the South African Reserve Bank (SARB) shows that household finances are under extreme pressure as stubbornly high inflation eats away at consumers’ purchasing power.

Data published by the SARB this week showed that there had been incredibly slow disposable income growth in the first quarter of the year, with personal disposable income (PDI) growing a modest 0.2% over the period, down from 0.6% in Q4 2022.

While disposable income saw some growth, the purchasing power of this income growth was undone by elevated inflation.

According to banking group Nedbank, as disposable income came under pressure over the quarter, consumers turned to credit to make ends meet and support their expenses.

But this happened alongside ten consecutive interest rate hikes, which made servicing that debt even more costly, keeping the pressure up.

Vicious cycle

Consumer price inflation surprised the upside in February and March. As a result, the Reserve Bank continued to hike interest rates aggressively to try and bring inflation back within its target range of between 3% and 6%.

As interest rates hit 8.25%, consumer confidence was weighed down by worsening electricity outages which hurt prospects of further employment growth for the remainder of the year.

“Consequently, households were more cautious of spending. Growth in consumer spending slowed to 0.4% in Q1 from 0.7% in Q4,” said Nedbank.

Consumer inflation has since come down – currently sitting at 6.3% in May – but the impact of inflation and resultant interest rate hikes is still filtering through the economy.

Nedbank said that, given the squeeze on disposable income, more households were forced to supplement spending with credit. As a result, growth in consumer credit averaged 7.6% year-on-year.

This also led to seasonally adjusted nominal household debt rising faster than income in Q1, pushing the household debt-to-income ratio up to 62.1% from 61.6%.

The graph below illustrates the rate at which debt-to-income rations trended upwards recently:

Not only did the percentage of debt held by an average South African increase, but the cost of servicing the debt followed suit with 475 basis points in interest rate hikes added to monthly bills.

Nedbank said that the ratio of household service cost to disposable income increased to 8.4% in Q1 – the highest since the second quarter of 2020 – from 7.9% in Q4.

“Encouragingly, households’ net wealth increased in the fourth quarter as the value of total assets outweighed that of total liabilities. According to the SARB, the value of assets was lifted mainly by higher share prices and housing stocks.”

“Consequently, the ratio of net wealth to nominal disposable income rose to 397% from 391%,” said Nedbank.

The graph below shows the increase in debt servicing costs:

Moreover, households in the country are saving less, with the ratio of household savings to GDP savings falling to 1.8% from 2.0%, while dissaving by the government increased further to 2.4% from 1.1%.

Nedbank said that the ratio of gross national savings to GDP increased in Q1, rising to 14.5% of GDP from 13.5% in Q4. The lift came from corporate savings, which increased to 15% from 12.5%. By contrast, the ratio of household savings to GDP fell to 1.8% from 2.0%,


Nedbank said household finances to likely remain under pressure in the short term; however, falling inflation will start to ease some stress put on disposable income during the second half of the year.

“However, the benefit from lower inflation will partly be contained by higher interest rates and administered prices. A significant improvement in household finance will be achieved with higher employment growth.”

“This is unlikely to be experienced in the short term, given that slow policy reforms and persistent power shortages, among other structural issues, are weighing on the private sector’s appetite to increase capacity and fast-track employment,” Nedbank said.

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