April Fools: 10 reasons why the joke is on you

Cape Town – April 1 is usually a time for tomfoolery as many accept the odd joke or two at their own expense, all in the name of good fun. But come Friday, the economy will be playing the biggest joke of all and South Africans won’t be laughing this time around.

Here are 10 reasons why the joke’s on you:

1. Fuel price increase

There have been a few slight price drops recently. However, the next increase kicks in on April 6, with an expected hike of 95 cents per litre in the price of diesel, and 85c/l in the petrol price. The official announcement is on April 1.

2. Electricity increase

Energy regulator Nersa has approved a 9.4% electricity price increase which becomes effective on April 1.

3. Repo rate increase

We have already seen an increase of 75 percentage points in interest rates in 2016, with an expectation of up to 100 basis points more this year. This will take the repo and prime interest rates to 8.25% and 11.75% respectively, economists caution.

A repo rate hike always results in increased borrowing costs for consumers, as banks immediately raise the cost of home loans, vehicle finance, student loans, personal loans, store cards, credit cards and any other type of credit or loan linked to the repo rate.

4. Sin taxes

In the 2016 Budget Speech, Finance Minister Pravin Gordhan announced a 6.7% duty increase on a pack of 20 cigarettes from R12.43 to R13.24, while beer costs 8.5%, wine and sparkling wine 8%, and spirits 8.2% more.

5. Inflation outside of target

Inflation rose to 7% last month, way above both analyst expectations and the Reserve Bank’s target ceiling of 6%. Economists expect cautionary measures will be taken to bring it back into the 3% to 6% target range. Ever-increasing food prices are one of the main culprits for the inflation spike.

6. Unstable exchange rate

The extreme fluctuation since the beginning of the year has seen the rand dip as low as R17.99 in January 2016. This causes uncertainty among investors about the stability of investing in the country.

7. Increase in consumer over-indebtedness

There has been a continued increase in the over-indebtedness levels of South Africans on a monthly basis, due to all of these factors. Studies show that consumers are increasingly resorting to credit to buy food. Debt experts say low income earning South Africans ( < R5000/month) will be seeing their financial situations severely affected as they try to manage the increase in the costs of living. DebtBusters’ latest statistics show that 80%+ of low income earners’ debt is unsecured, expensive debt. The stats also show that these consumers required 146% of their net income to pay their monthly debt repayments (before debt counselling).

8. High unemployment with expected increases

Already high unemployment levels (24.5% at the end of 2015) are expected to rise as the weak economy impacts businesses.

9. Food price increases

The recent drought has had a severe impact on food production, especially staple foods. The latest Pietermaritzburg Agency for Social Development report reveals that since January, the price of a 25kg bag of maize meal – a staple for poor families – has gone up by 12%.

10. Weak international economy

Economic problems are not unique to South Africa and international markets are at present highly cautious in their approach to investment. South Africa is a country which is heavily reliant on imports and a weak rand causes inflation to rise even further, coupled with the drought which is going to potentially force us to import foodstuffs.

Neil Roets, CEO of debt management firm Debt Rescue, said the above factors all indicate a gloomy short- to medium-term outlook for consumers. He said his company is seeing double-digit growth increases due to deeply over-indebted consumers seeking relief by going under debt review.

Head of marketing at DebtBusters Wendy Monkley cautioned that South Africans, who are already struggling financially, are sure to see a knock-on effect in the price of food, transport and rentals as stores, transport operators and landlords try to pass along the cost of their increased expenses to consumers.

Said Monkley: “Consumers are going to have to rethink their finances and make any necessary omissions from their monthly expenditure if possible.”

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