Pretoria - South African consumers who are employed in the formal sector have enjoyed substantial wage increases, but different and new cost pressures means that even with inflation under control and at current low intetrest rates, they cannot enjoy those gains.
This was according to economist Mike Schussler of economists.co.za who spoke on SABC 3 following the Reserve Bank’s Monetary Policy Committee ,eeting which on Thursday resolved to leave interest rates unchanged at 5,75%.
“South African workers have done well over the past decade to decade and a half, but they now have face pressures that they did not face before,” said Schussler, noting that factors such as higher municipal rates, especially in urban areas, higher electricity and water prices, cellphone contracts and e-tolls in Gauteng have all eroded the spending power of the average formally employed consumer.
The long term solutions to the higher cost of living was more efficient infrastructure and controlled administered prices,or prices controlled by government.
Schussler said the biggest risks to South Africa’s economic outlook were depreciation of the rand against the dollar, prolonged strikes, as well as power supply challenges from Eskom.
The MPC left rates unchanged at 5,75% with Reserve Bank governor Lesetja Kganyago confirming that the respite that consumers enjoyed from the lower oil and petrol price “was short lived”and the growth outlook remained subdued.
The Reserve Bank has revised upwards its inflation forecast and now expects inflation to average 4,8%, up from 3,8%. Inflation was now expected to breach the upper target of 6% in 2016 and to peak at 6,7%.
South African consumers enjoyed a breather when the oil price dipped to a low of $45 per barrel oil but was now approaching $60 a barrel
On the growth outlook, Kganyago noted that there had been a slowdown in the United States and China with some improvement in Japan and the Eurozone. the Reserve Bank now expected the South African economy to grow at 2,2%, up from 1,5% in 2014. However, the projected growth rate for 2016 was now 2,3% which meant growth would be well below required levels for some time
Consumers remained under pressure and credit extension to households stood at 3,5% while credit extension to corporates rose to 14,3%
Kganyago expected an electricity price increazse of 11% in July this year and the next July but pointed out a possibility of another increase before then if Eskom made use of a tariff reopener, a special application to raise tariffs during the year.
African News Agency