Cape Town – The prime interest rate could be closer to 10% by the end of the year and peak close to 11% sometime in 2015, according to Mike Schüssler of economists.co.za.
“While this is tough for consumers, it is not as bad as we expected just a few weeks or months ago,” he told Fin24 on Tuesday.
“Still these are belt tightening times. Many consumers are feeling the effect and small businesses are in a confidence dip. However, I strongly think that looking over the year since July 2013, the worst may now be behind us – but it is touch and go.”
He said fuel prices are likely to decrease by a few cents next week as oil prices fell about 5% and the rand has been much stronger again over the last week or two.
“The repo rate will add about R10 per R100 000 outstanding on a 20 year home loan, a little more on car loans and at the bottom end not much as many micro financiers already charge a lot of interest,” said Schüssler.
“Yes, oil prices do change rapidly even when wars are going on, but the fact is at present petrol is going to decline with about 5c a litre, while diesel prices will drop about 10c a litre.”
Schüssler said food prices have seemingly peaked on the PPI level and are likely about to peak on the consumer level in the next two months or so.
“The stronger rand – although not a long term thing – has helped maize prices drop and the Ukraine situation is at least fully priced in,” said Schüssler.
“It is not great for consumers, but certainly the second half of the year may look a little less horrible than the first half. We do however still expect petrol prices to rise closer to the year-end but we may just miss R15 to the litre this year.”
He said the first half of the year, with strikes and a weaker rand compared to the last two years, played havoc and caused prices to rise and interest rates to rise too.
“But we should still not get the increases of before and a 0.25% increase is less than the normal 0.50% rise or even 1% rise at a time or 2.5% rise at a time during 1998,” said Schüssler.
According to economist Dawie Roodt the relative strength of the rand to the dollar and a stable crude oil price mitigates against a petrol price increase of much more than around 10c a litre.
Earlier this month, the petrol price increased by 29c a litre. With the added projected increase, it will take the fuel price to near record high levels.
Losing middle class status
Many consumers will lose their middle class status and become impoverished due to the general increase in the cost of living and rising inflation,” according to Neil Roets, CEO of Debt Rescue.
“With some 21.71 million credit-active consumers collectively owing around R1.44trn as at the end of March (according to Statistics SA), the picture is gloomy to say the least,” Roets said on Tuesday.
“There had been a steady decline in the fiscal health of consumers with many falling ever deeper into the debt trap.”
He said although figures released by the National Credit Regulator (NCR) show a dramatic decline in the number of consumers with impaired credit records compared with the same period last year, this is largely the result of the removal of adverse consumer credit.
“A clear indication of the dire state that consumers are finding themselves in is the fact that according to Standard Bank, South Africans are among the worst savers in the world,” said Roets.
“It said the ease of access to secured and unsecured lending had resulted in rising household debt levels, which made it increasingly difficult for consumers to save money.”
Standard Bank’s head of deposits and payments Michael Daniels said South Africa had high household debt to disposable income, which was currently sitting at “75% and starting to pick up”.
As the prime lending rate starts to increase, Daniels said disposable income might also be under pressure.