Pain for households in South Africa setting in for the long haul

 ·16 May 2024

South African consumers are facing further strain on their already depleted finances.

South Africa is currently a low-growth economy (0.3% in 2023), with the latest unemployment figures ticking up to 32.9% in Q1 2024.

15-year high borrowing costs and elevated inflation have also hit South African consumers.

However, cash-strapped households are unlikely to experience any relief in the near future, with further cost pressures predicted for the year ahead.

This includes delayed interest rate cuts, electricity price increases, higher municipal rates and expensive food items.

Interest rates and inflation

Following an optimistic outlook for interest rate cuts at the start of the year, many economists now expect interest rates to remain higher for longer, with the repo rate currently at 8.25%.

According to economists at the Bureau for Economic Research (BER), South Africa, like other emerging economies, is more likely to be tied to the United States Federal Reserve’s interest rate moves, which have seen cut expectations pushed back further into 2024.

The BER said that whether the South African Reserve Bank decides to cut before the Fed likely hinges on local inflation expectations.

Inflation cooled to 5.3% in March of this year but has continued to prove sticky, staying between 5% and 6% since September 2023.

Deloitte said that headline inflation should moderate from an average of 6% in 2023 to 5.1% in 2024 However, this still remains above the SARB’s target midpoint of 4.5%.

“Of course, the actual timing of the first Fed cut will also matter, with markets currently seeing some probability of easing in September. The Fed meets a day before the SARB is due to announce its interest rate decision,” the BER said.

The market sees only roughly 100 basis points of cuts coming to South Africa, with the BER potentially seeing a further downtick in 2026 if inflation behaves and settles around the target of 4.5%.

Some economists, including those at Nedbank, anticipate at least two rate cuts in 2024 – 25 basis points in September and November – but other projections are starting to believe that the central bank will continue to hold on to rates for the rest of the year.

Electricity prices

South African consumers have or are expected to experience above-inflation electricity increases.

In 2023, the National Energy Regulator of South Africa (NERSA) approved Eskom price increases of 18.65% for 2023/24 and a 12.74% increase that started in April 2024.

The price hike increased the average electricity tariff in South Africa from roughly R1.84 per kWh to around R2.07 per kWh. However, this only reflects the national average, with the local municipality and urban customers paying different totals.

An average Eskom customer using 200 kWh per month in urban Gauteng will now pay roughly R790 monthly.

On the other hand, municipalities bill their customers at different rates, with many only beginning to do so in July.

The City of Cape Town has penned in an 11.8% increase for July, meaning customers would have to pay R785 for electricity using 200 kWH.

Johannesburg’s City Power uses a block system. Block 1 (0-350kWh) offers the cheapest power, which slowly climbs in price with further usage. In block 1, residents in Johannesburg pay over R200 less than their Mother City and Eskom counterparts.

eThekwini customers are set to pay the most for electricity, with the city pencilling in a 14% increase in electricity for 2024/25.

Supplier2022/23Tariff Increase %2023/24Tariff Increase %2024/25 (~exp)
Cape TownR610.0817.6%R70211.8% (exp)~R785
Joburg (Block 1)R419.4514.97%R48212.7% (exp)~R543
eThekwiniR599.2218.49%R71014.0% (exp)~R809

Food prices

Food prices have also shot up in recent years, with consumers spending far more of their income on goods.

The Bureau for Food and Agricultural Policy (BFAP), using data from Stats SA Living Conditions Survey 2014/15 and data inflation-adjusted to Quarter 1 of 2024, said that the average share of household income assigned to food and non-alcoholic beverages is:

  • 35% for low-income households;
  • 17% to 31% for middle-income households;
  • 7% for affluent households. 

“It is also important to note that various studies reported food expenditure share values of up to 51% for vulnerable households (based on 2008 / 2010 data)—thus, even this share could already be higher—about 55% possibly if inflation-adjusted,” said BFAP’s Dr Hester Vermeulen.

The Pietermaritzburg Economic Justice and Dignity group’s (PMBEJD’s) Household Affordability Index for April 2024 showed that the average cost of a household food basket was R5,336.31. This was a 74.93% increase from June 2018, when the same basked only cost R3050.58.

However, looking more positively, food inflation dropped from 6.0% in February to 4.9% in March.

Wandile Sihlobo, Chief Economist of the Agricultural Business Chamber of South Africa (Agbiz), said that food inflation could be better than previously expected due to the recent easing of load shedding, even if South Africa is still experiencing drought conditions linked to the El Nino weather phenomenon.

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