Credit surges as consumers batten down for hard times
Consumers and retailers must make the most of the Easter festive cheer as rising international oil prices, fuel, electricity and food costs are forecast to dampen the outlook for confidence and spending over the coming months.
Motorists are forecast to pay at least 56c more for petrol at the end of this month as rising global demand and reduced supply from oil-producing countries have resulted in soaring crude oil prices.
Economists are predicting oil prices to remain elevated but ease back towards $50 a barrel later this year. But in the meantime raised oil prices will leave the door open for potentially higher fuel prices as the cost of fuel imports rises.
The elevated fuel costs are likely to have a domino effect across sectors.
PwC economist Dirk Mostert said: "The first-round effects will lead to higher private transportation costs and then permeate into the prices of food and other consumables through the higher road transportation costs embedded in the respective supply chains."
The hikes have a greater impact on the baskets of lower-income households. Mostert said consumer price inflation for the lowest earners rose by up to 4.9% in March compared to an overall annual increase of 4.5%.
"This leaves many with no choice but to buy on credit or borrow money at repayment rates that are likely unsustainable to service in the long run."
Lenders are already seeing a surge in credit applications as consumers fall on tough times. Credit applications for unsecured lending rose to a record 12-million in the last quarter of 2018, from the previous quarter, the National Credit Regulator reported last week. But tighter credit conditions also saw the rejection rate leap significantly.
It is little wonder that consumers are seeking more credit as prices are rising. The consumer price index (CPI) accelerated to 4.5% in March from 4.1% in February.
CPI was amplified in March as it included additional surveys that showed the rise in housing costs, domestic workers' wages, motor vehicle insurance as well as a 6.8% hike in primary and secondary school fees and a 1.3% jump in public transport prices over the month.
Food prices are also rising, with the cost of fruit and vegetables rising at a faster pace than other food items.
White and yellow maize prices were 20% higher than levels last year.
This was offset by lower meat prices, though this could change in coming months as SA is engaging with several countries to reopen exports markets for beef in Africa and the Middle East, which could increase meat prices as demand rises, Wandile Sihlobo, head of research at the Agricultural Business Chamber, said.
Lower-income households have borne the brunt of food increases and research by the Pietermaritzburg Economic Justice & Dignity Group found these households have barely benefited from the government's expansion of the list of goods exempt from VAT. For example, the addition of cake flour to the list resulted in only a R2.16 saving on food baskets of low-income households. The total cost of the April 2019 household food basket was R3,076.76 from R3,108.77.
Items in the food basket of lower-income households that have risen include tinned pilchards, rice, maize meal and a 16% rise in the polony price in the 10 months since June last year. But potato prices are down 2%.
Among personal and household hygiene products, roll-on deodorant is 18% more expensive since last month but prices have dropped for washing powder and sanitary pads, which are now exempt from VAT.
Mervyn Abrahams, programme co-ordinator of the Pietermaritzburg Economic Justice & Dignity Group, said the study showed that zero-rated foods themselves were not affordable and that low-income households were highly exposed to VAT, with 20 out of the 38 foods that make up the typical food basket subject to VAT. "Increasing the old-age grant and child support grant and removing VAT off all food would have yielded much better socioeconomic and development results than zero-rating cake flour. "Fortunately for consumers, an interest rate hike is not expected in the near term as inflation is forecast to remain within the Reserve Bank's target range until 2021. At this stage the central bank's model forecasts one interest rate hike of 25 basis points this year.But economists believe the rising fuel costrisks increasing inflation and this pressure is likely to be discussed at the monetary policy committee meeting next month.Nedbank economists Busisiwe Radebe and Dennis Dykes said inflation "will remain below 5% for most of the year, contained by weak demand conditions and moderate food price increases". But economists also say constrained economic growth reflected in weaker retail sales growth of 1.1% in February from 1.2% in January may convince the Bank to leave interest rates on hold this year and resume a mild tightening cycle in firstname.lastname@example.org