Middle income earners feeling the pinch of inflation
Durban - Middle-income consumers are feeling the pinch of higher food and administered prices (electricity, fuel, school fees) that are crippling poor households who are taking on burgeoning debt to survive from month to month.
This was among the findings of Pietermartizburg NGO Economic Justice and Dignity’s (PMBEJD) Household Affordability Index for January, released last week.
The PMBEJD warned of spiralling financial woes for consumers in the coming months. If Eskom is granted a 17% price hike and VAT is further raised as some analysts predict, however, economists said yesterday that consumers could expect some relief in terms of lower food price inflation due to improved weather conditions and expanded planting.
According to the report, the cost of a basic household food basket increased by R221.70 (7.1%) from R3118.28 in January 2019 to R3339.98 in January 2020. There was also a R140.11 (4.4%) hike in the cost of the basket between December 2019 and January 2020.
Food items that reflected above the SA Reserve Bank’s 3 to 6% inflation target band included potatoes (10%); onions (8%); tomatoes (33%), carrots (25%); spinach (14%); butternut (8%); cabbage (23%); frozen chicken pieces (9%), chicken feet (27%); beef (10%); peanut butter (9%), wors (61%) and tea (28%).
The survey, which gathers prices at retailers used by low-income earners in Pietermaritzburg, reflects price increases higher than those recorded by the National Agricultural Marketing Council, whose latest report indicates annual food price inflation of 2.7% for its R869.94 basket of 28 basic items in December.
PMBEJD’s programme co-ordinator, Mervyn Abrahams, said that the household affordability crisis was no longer solely a working-class issue.
“More households are struggling to make ends meet and this struggle is getting harder,” he said.
Abrahams said the SARB’s recent 25 basis points repo rate cut was too small to make a substantial difference.
“Further cuts in the repo rate would be necessary because more and more of the middle class are now joining the working class in the queue to take on debt for monthly consumption expenses: to put food on the table, put petrol in the car, keep the lights on and children in school,” Abrahams said.
According to the report, transport costs had increased by 7.7%; electricity had increased by 13.1% and the cost of a basic nutritional basket of food for four people had increased by 3.8% year-on-year.
“Millions of South African households are in a worse position, and remain unaffected by the drop in the repo rate because they don’t access credit through the formal banking system but through some variation of a loan shark. Households living in this world cover expense shortfalls by cutting back on food and going deeper into debt via some variation of a loan shark. This is not a sustainable strategy for South Africa,” Abrahams said.
Agricultural Business Chamber of South Africa chief economist Wandile Sihlobo said the drought and delayed rainfall at the start of summer had introduced fear of a poor season into the market.
“Once that gets into the market, there is usually a reaction on the
pricing side, and now that things have turned out differently and we have received rainfall, we seem to be expecting some good crops, so prices should soften,” Sihlobo said.
FNB Agri-Business senior agricultural economist, Paul Makube, said there had been an “almost unseasonable demand situation” which had resulted in price hikes of fresh produce despite improved volumes.
However, he said South Africa’s Crop Estimates Committee’s latest forecast pointed to “a somewhat optimistic outlook” for the agricultural sector as seasonal conditions turned positive.
SA National Consumer Union vice-chairperson Clif Johnston said the high December/January inflation was in line with a trend he had noticed in recent years.
“Prices tend not to go up just before Christmas like we used to see, but because people take a long break over Christmas and people forget the prices, prices shoot up in January and in February/March they tend to come down again.”
He said consumers were battling to cope with rising administered prices.