Perfect storm about to hit South Africans earning more than R15,000 a month
South African households are heavily in debt and are running out of lifelines for money to make it through the month.
Meanwhile, living costs are set to rise again in July as new electricity tariffs and municipal rates kick in—all while interest rates remain at record highs.
This is creating the perfect storm of financial trouble for the middle class, especially as this category of households is always on the cusp of falling into poverty due to ever-changing economic conditions.
The storm includes:
- Middle-class household debt instalments are at 79% of income;
- Banks are tightening credit lines as households burn credit on essential spending;
- Inflation remains high (albeit declining);
- Interest rates remain at 15-year highs (and relief is only expected at the end of the year);
- July will see municipalities hiking various rates and tariffs, including electricity;
- Fuel prices are expected to come down but remain R5.00 per litre higher than just two years ago.
According to the latest Eighty20 Credit Stress Report, middle-class workers—households with an income of nearly R25,000 a month or a personal income of R15,000 a month—have over R77 billion in overdue bills.
Debt levels are the highest for the middle class, at 79% of income going to instalments, up by nearly 28% in just over two years.
Despite already being heavily indebted, households in South Africa are still scrounging around for new debt, looking for new credit lines so they can make it through the month.
The latest data on broad money supply in South Africa shows that households are still burning through credit each month and are increasingly turning to these lifelines to buy necessities and other essential spending.
Nedbank’s analysis of the situation attributed this to salaries and incomes for households in South Africa declining in real terms due to high levels of inflation, while persistently high interest rates add even more pressure to those in debt—which is almost everyone.
The good news for middle-class households is that relief is coming, albeit slowly.
Inflation is steadily coming down and should be at the Reserve Bank’s mid-point target (4.5%) in 2025. Food inflation, in particular, has eased to satisfactory levels (though risks to the upside, especially from adverse weather impacts, remain).
In the near term, fuel prices are also expected to come down in July, with another R1.00-plus cut building for next month. However, Investec chief economist Annabel Bishop noted that fuel prices are still R5.00 per litre higher than they were in 2022.
Regardless, easing inflation and fuel prices should allow the Reserve Bank to cut interest rates, bringing much-needed relief to indebted households that have had to spend thousands of rands covering the year-long hold at 15-year highs.
But this is only expected at the final meeting(s) of the year; September at best, November most likely, and January almost certain.
Before we get there, these households will first have to deal with the incoming price storm.
From 1 July 2024, municipalities across South Africa will be hiking the rates for properties, electricity, water, santiation and refuse.
Special interest group AfriForum has approached the courts to try and block municipalities from hiking electricity rates, alleging that the appropriate cost studies have not been conducted.
According to the group, the use of a cost study for tariff increases is critical because it gives a clear outline of what municipalities’ tariffs must be to deliver the service properly and maintain networks.
It wants to block energy regulator Nersa from approving the hikes, which could see some tariffs hiked between 11% and 16%.
Whether AfriForum is successful or not, however, other rates will still be kicking in.
This includes hikes in water tariffs between 6% and 15%, sanitation tariffs between 6% and 13%, and property rates between 4% and 8%.
According to economists at Nedbank, while pressure is expected to ease further into the year, the immediate strain from high interest rates and other factors will likely persist for longer. This echoes the views of other economists and analysts, which only anticipate and easier time in Q4 and early 2025.
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