Things might be looking up for cash-strapped South Africans

 ·7 Jun 2024

South African consumers under pressure can expect some relief by the end of the year.

The latest BankservAfrica Take-home Pay Index (BTPI) showed that salaries jumped by 5.6% in April to R15,374. This was better than the 5.3% inflation print in April, showing real growth.

“While a small increase on its own, real take-home pay rose by 3.5% y/y in January, with inflation a key factor to these real salary and wage outcomes,” said Investec Chief Economist Annabel Bishop.

In 2022 and 2023, real remuneration fell, contributing to consumer weakness and lowering economic growth (Household Consumption Expenditure is two-thirds of GDP).

Over the last two years, the rand’s weakness has been a massive contributor to higher inflation, including the R5 per litre increase in petrol prices, while food inflation also jumped in 2022 and 2023.

Higher interest rates over the years also added to debt service costs, which escalated to 9.0% of disposable income in 2023, leading to an increased risk of arrears and defaults.

“Taxation, both direct and indirect, on households has remained a significant drag on consumption as well, with the tax elasticity showing minimal room for further increases without weakening economic growth materially further,” said Bishop.

Signs of hope

That said, South Africa has some signs of life, with CPI inflation expected to fall over the remainder of the year, likely reaching 4.2% by year-end.

The release of retirement savings under the incoming two-pot retirement system in September will also likely support Household Consumption Expenditure in Q4 2024 and Q1 2025, adding roughly R40 billion to consumer income if fully utilised and taxed similarly.

With load shedding far lower than in 2023, GDP growth in 2024 will likely improve from the 0.7% seen last year. This, along with improvements at the ports, will support business activity and aid firms’ wage affordability.

The international oil price has also seen a massive drop over the last month, which, if sustained, could result in a R1.65/litre drop in petrol next month.

High unemployment (33%) is also a key driver for weak consumer finances and weak HCE growth relative to the mid-2000s (2008: 21.5%)

However, BankservAfrica BTPI data showed that about 132,000 more salaries were paid in April 2024 compared to March, potentially indicating a mild tick-down in the unemployment rate if sustained over the quarter.

Investec also believes that there will be an interest rate cut in November due to moderating inflation, which should add further relief to consumers.

Read: South African ports ranked among worst in the world

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