More financial pain expected for consumers as cost of living increases

By Yogashen Pillay

DURBAN – DEBT Rescue SA and economists warn the latest interest rate hike by the South African Reserve Bank (Sarb) will put more strain on the already struggling South African consumer.

Last week, Sarb governor Lesetja Kganyago announced the repo rate would be increased by 50 basis points to 4.75%.

Neil Roets, CEO of Debt Rescue SA, said this was terrible news for the consumer.

“We have to take into account that the latest interest rate hike will increase loan repayments and in South Africa we have a major problem as people live on loans.

“South Africans also tend to buy groceries on credit and this will mean people will be paying more for groceries because of credit. It’s not just groceries, if you have a mortgage, vehicle finance or any loan you are going to find yourself paying more. The major issue is while repayments are going up with the interest rate hike, salaries unfortunately remain the same and that will be a major strain on the consumer.”

Professor Bonke Dumisa, an independent economic analyst, said the rate hike had been expected, as from January to May the consumer price index (CPI) had reached 5.9%.

“We have to bear in mind that there are global factors affecting the South African interest rate hike. Earlier this month the US Central Bank announced that the interest rate would be hiked by 50 basis points or 0.5% and it was expected that this would lead to other countries including South Africa following suit.

“The ongoing conflict in the Ukraine continues to have a negative impact on the world’s economy, we have to be hopeful that there is a resolution to the ongoing crisis.”

Dumisa added this undoubtedly would have an effect on the consumer.

“People are already struggling and the interest rate hike will bring an increase in the cost of living. When the repo rate goes up businesses are affected, as their loan repayments are higher and whenever a business is affected in paying more for anything it is automatically passed on to the consumer and the consumer ends up paying more.

“The sad thing is that it is the poorest of the poor that ends up paying more for goods and is affected the most. Remember, whatever economic bracket you fall under, the food basket price is the same. It is concerning for the poor as it will see them paying more for basic necessities. Things like meat prices will see an increase.

“It is a bad situation and there might not be any changes for the better in the near future but we have to remain hopeful and optimistic.”

Dr Ntokozo Nzimande, a senior lecturer in the Department of Economics at the University of Cape Town, said South Africans were overly indebted and constrained already and this hike added to their problems.

“In its recent report, FNB revealed that it takes roughly five days for the middle class to blow their income and this hike means that it will now take less than that – as a huge portion will now have to go to servicing their debts. I honestly think that the Sarb got it wrong this time – 50 basis points is overly aggressive.”

Dr Sanele Gumede, a lecturer in economics at the University of KwaZulu-Natal, said the South African economy was not doing well and therefore there was a need to hike the interest rate.

“The consumer price index (CPI) rate which is used as a target by the South African Reserve Bank needs to be at 4.5%, if it is higher than this like it is now, then the Reserve Bank has to do something which is an interest rate hike. It is unfortunate as this does put pressure on the consumer and takes money away from them.

“Simple things like bread prices will go up. South Africans are dealing with a lot – both business and the consumer. Just last year we had the July unrest, before that we had Covid-19 and now even the recent floods all have had a negative impact on the South African economy. When businesses are under pressure, it affects the consumer and once the consumer has a fear of buying, it will affect the economy.”

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