South Africans are poorer than they were in 2016
Inflation has eroded South Africans’ salaries, with paltry income growth of 2%-13% melting away in the face of a 46% rise in costs since 2016.
This is according to DebtBuster’s latest Debt Index for Q2 2024, which noted an increase in consumer demand for debt management in South Africa.
The median debt-to-annual income ratio has been stable for four quarters straight, but it remains elevated at 105%.
“We welcome this improvement but still observe that the full impact of successive interest rate increases since November 2021 continue to be felt in consumer finances,” said Debtbusters.
“If one considers that since 2016, electricity tariffs increased by 135%, petrol prices doubled, and inflation’s compounded impact is a 46% increase in CPI, then it is perhaps not surprising that 82% of consumers who applied for debt counselling in Q2 2024 had a personal loan.”
Another 53% of consumers had a one-month loan, indicating that consumers continue to supplement their income with short-term unsecured credit and personal loans.
Compared to 2016, consumers who applied for debt counselling in Q2 had 44% less purchasing power.
Although nominal incomes were 2% higher than 2016, the cumulative inflation growth was 46% over the eight years.”
“While the inflation impact has subsided, consumers are feeling like they are taking home 44% less today in real terms than they did in 2016,” said Debtbusters.
Debtbusters’ data is limited to South Africans who are under debt review, but on a national average, the same pattern emerges.
According to the BankservAfrica Take-home Pay Index (BTPI), the average banked salary in 2016 was around R13,600 (April 2016).
In 2024, the latest index shows take-home pay at R15,400—growth of 13.2%, but far below the 46% inflation over the period.
Had salaries kept up with inflation, take-home pay would have been around R20,000.
When interest rates started to increase in November 2021, consumers felt strain due to the increasing cost of servicing asset-linked debt.
The average bond rate went from 8.3% per annum in Q4 2020 to 12.3% per annum in Q2 2024.
A more significant concern is that the average interest rate for unsecured debt is now at an eight-year high of 26.0% per annum.
Relief is around the corner
The positive news is that South African consumers could soon see some relief in the coming months, with the South African Reserve Bank expected to start cutting interest rates in September.
The SARB started raising interest rates in 2021, with the repo rate currently at a 15-year high of 8.25%.
The Reserve Bank’s Monetary Policy Committee (MPC) voted to keep the repo rate on hold at its last meeting in July, but two of the six members voted to cut interest rates by 25 basis points—prompting economists and analysts to pencil in a cut for September.
The SARB expects inflation to return to its target of 4.5% in Q4 2024. The rand has also strengthened following the formation of the Government of National Unity (GNU) between the ANC and nine other parties.
In global markets, analysts believe that the US Federal Reserve will also start cutting rates in September amid weak job numbers and declining inflation, further fuelling expectations of local cuts that month.
Amid these developments, Bank of America, Standard Bank, Nedbank, and the Bureau for Economic Research (BER) expect the repo rate to be cut by 25 basis points in September.
The BER also sees the potential for a 50 basis point cut in September if market conditions are right.
“For this to materialise, the rand exchange rate would need to behave—with higher probabilities of faster Fed easing possibly helping in this regard—and the oil price should not spike up on a sustained basis,” said the BER.
“Market developments, global monetary policy dynamics, particularly decisions by the Fed, which meets the day before the SARB, and the actual inflation prints for July and August—the day before the September SARB meeting—will help shape this view.”
Services inflation trends, which will be released in September, will also significantly affect whether interest rates are cut.
“If expectations are sticky, a bigger cut is unlikely, but we do know the SARB targets 4.5%, and inflation is heading there—and, for now, likely to stay there—so some easing from the current restrictive stance is warranted,” said the BER.
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