Source: Supermarket & Retailer
FNB forecasts a considerable decrease in real household disposable income in 2022, with South Africans expected to have even less money available for discretionary spending in the coming months.
The group noted that disposable income growth would slow from 5.9% in 2021 to 2.1% this year, partly due to a higher inflation forecast and gradually rising interest rates this year – and in part due to higher income base effects in 2021.
Disposable income growth in 2022 could also be under pressure from a fragile employment situation, the bank said in a note on Wednesday (20 April).
“Last year’s resurgence in disposable income growth had much to do with a significant resurgence in income from investments following the 2020 dip and less to do with any meaningful employment growth. By the final quarter of 2021, total employment was still in a year-on-year decline to the tune of -3.2% and was still a massive -11.4% down on the fourth quarter of 2019.
“One positive to partly offset this employment negative has been an extension of the Social Relief of Distress Grant; a special relief grant started up during the Covid-19 lockdown period. But this grant can only go so far and will be hard-pressed to offset employment, inflation and interest rate hiking negatives.”
Statistics South Africa reported that annual consumer price inflation quickened to 5.9% in March from 5.7% in February, placing it just below the upper limit (6%) of the South African Reserve Bank’s monetary policy target range.
Transport, housing and utilities, and food and non-alcoholic beverages were the most significant contributors, with transport contributing 2.1 percentage points to the annual rate.
“In the household financial data of the SARB, we had already seen consumer price inflation, as measured by the Private Consumption Expenditure (PCE) Deflator, accelerate from 1.9% year-on-year as at the final quarter of 2020 to 4.8% by the final quarter of 2021,” FNB said.
“This acceleration directly curbs real disposable income growth, eating away at an increased portion of the growth in nominal disposable income.”
From a low of 2% year-on-year in May 2021, the bank said that the 3.7 percentage points rise in CPI inflation by February 2022 has already taken a very significant bite out of disposable income.
“In addition, the onset of SARB interest rate hiking late in 2021, with three 25 basis points’ worth of hikes to date as a result of rising CPI inflation, takes an additional bite out of disposable income, with the Household Sector debt-service ratio likely to have risen in the first quarter of 2022 as a result.”
“Food price inflation had been troublesome in 2021 already, but a surge in global oil prices led to high domestic petrol price inflation (reflected in the CPI for transport) that was a major driver of the acceleration in overall CPI inflation.”
In more recent times, the Russian invasion of Ukraine, along with resultant boycotts and sanctions, has significantly increased risks of global and thus domestic food price inflation pressures, global energy price pressures, and broader global supply chain disruption pressures, FNB said.
“And even more recently, last week, the severe KZN floods not only caused major damage to peoples’ homes and property but also to businesses and transport, including disruptions to goods flows through Durban, SA’s biggest port. Any supply chain disruptions from this could threaten the inflation environment still further.”