South Africans in dire straits

South African consumers are under tremendous pressure due to the elevated cost of living and rising debt costs. However, relief is coming as inflation decreases further and interest rates are cut. 

Trade Intelligence’s Grocery Shopper Report for 2024/25 revealed just how severely South Africans have been affected by the rising cost of living and, in particular, food inflation. 

The report showed that 17% of household expenditure in South Africa is spent on food alone, coming second to housing and utilities which take up 25% of spending. 

Over the past few years, food inflation has remained sticky, keeping headline inflation elevated and even resulting in the Competition Commission investigating retailers for potential price gouging. 

In 2023, food inflation averaged 10.8%, following an average of 9.2% in 2022 – driving up headline inflation. 

Trade Intelligence said grocery budgets are coming under increasing pressure, with South Africans becoming more value-conscious and, in some cases, simply eating less to manage their expenses. 

The increases in the price of food have been compounded by electricity tariff hikes, which are 12.7% higher than last year. 

Increased fuel prices have also affected consumers, rising 17.1% in 2022 and 5.1% in 2023. As fuel is a universal input, this effectively raises the cost base of the entire economy. 

Trade Intelligence’s report also highlighted the pressure on consumers by elevated interest rates, which have risen 475 basis points since November 2021. 

This increased the prime lending rate to 11.75%, significantly increasing the cost of paying off debt through car and home loans. 

For example, repayments on a R1.5 million home loan have increased by R4,600 per month compared to three years ago. 

Trade Intelligence also said that 9.9 million credit-active consumers had missed more than three monthly repayments, placing them in significant financial distress. 

Relief is coming 

The good news is that consumers will soon experience relief, with inflation trending downwards and interest rate cuts imminent. 

Standard Bank’s head of macroeconomic research, Dr Elna Moolman, said there are already signs that South African consumers are experiencing relief. 

For example, Stats SA revealed last week that retail sales increased for the third month in a row in April and are likely to increase again in May due to reduced load-shedding. 

Moolman also noted that sentiment among retailers has improved as they foresee increased sales volumes in the second half of 2024, indicating a resurgence in consumer spending. 

“Notwithstanding the obvious headwinds to consumers, we still foresee an improvement in the state of consumers over the course of this year, supported by lower inflation and the recovery in employment in 2023 – as well as the interest-rate relief in the offing later this year,” she said. 

This improvement will also be boosted by consecutive petrol price cuts of above R1 per litre in June and July. 

A decline in fuel prices will help bring down headline inflation and, in particular, food prices as over 85% of all goods in South Africa are transported via road at some point. 

Moolman did warn that clearer signs of relief may take time to appear and that, so far, the relief in terms of lower inflation has been modest. 

She also cautioned against being too optimistic regarding interest rate cuts, with Standard Bank only expecting a shallow cutting cycle of only four 25 basis point cuts. 

This would bring the repo rate down to 7.25% and the prime lending rate to 10.75%. 

Trade Intelligence echoed this warning, saying that any relief from declining inflation and interest rates would take time to be felt. 

Furthermore, it said that reduced inflation does not mean prices are coming down – they will just increase at a slower rate.