Tag: cost of living

It costs R4 500 to feed a household in SA

By Vernon Pillay for IOL

The April 2022 Household Affordability Index, which tracks food price data from 44 supermarkets and 30 butcheries, in Johannesburg, Durban, Cape Town, Pietermaritzburg and Springbok, shows that in April 2022 the average cost of the Household Food Basket is R4 542.93.

Food baskets increased in all areas tracked:

  • The Joburg basket increased by R65.86 (1,5%), and R242.49 (5,6%) year-on-year, to R4 563.09 in April 2022
  • The Durban basket increased by R138,27 (3,1%) and R409.21 (9,8%) year-on-year, to R4 583.05 in April 2022
  • The Cape Town basket increased by R75.90 (1,7%) and R308.67 (7,5%) year-on-year, to R4 430.42 in April 2022
  • The Springbok basket increased by R225.37 (4,8%) and R449.46 (10%) year-on-year, to R4 960.01 in April 2022
  • The Maritzburg basket increased by R98.31 (2,3%) and R449.65 (11,6%) year-on-year, to R4 335.83 in April 2022

35/44 foods in the basket increased in price.

The significant increases (5% and above) are: cooking oil, potatoes, beef, fish, spinach, cabbage, green pepper, tinned pilchards, bananas, polony, and apricot jam. Increases, also including maize meal, cake flour, rice, white sugar, samp, eggs, milk, frozen chicken portions, margarine, peanut butter, bread; and curry powder, stock cubes.

The cost of the household food basket continues to rise. Factors (global and local) impacting on the plate include the war in the Ukraine, the high brent crude oil price, the high fuel price, and a weak exchange rate. Much higher production and logistical costs will continue to drive prices upwards and are likely to continue rising for the rest of 2022. The recent flooding in KwaZulu-Natal (not accounted for in this April data – prices collected before the rains) will add to these increases going forward.

Statistics South Africa’s latest Consumer Price Index for March 2022 shows that Headline inflation was 5,9%, and for the lowest expenditure quintiles 1-3, it is 6,7%, 6,4% and 5,7% respectively. CPI Food inflation was 6,6%.

Responses by retailers

At the retail level, supermarkets have responded by rounding on the higher food prices by bringing in a lot of new cheaper brands, offering shop brands, offering specials (some unbelievable), offering ‘combos’ (maize meal, rice, flour, sugar, oil; potatoes, onions, carrots etc.), offering store cards, according to the study.

The index goes on to say that, most families now only buy the basic of the most basic foods. There is nothing to cut back. There is no behavioural change to make. There is no space to manoeuvre on the family plate. The space that is left is on finding a cheaper priced food. This space is the domain of the retailers.

Household domestic and personal hygiene products

The April 2022 Household Domestic & Personal Hygiene Index shows an increase of R26.44 (3,5%) month-on-month, with the total average cost of the products being R785,84 in April 2022.

This is a big monthly jump in the index. Increases were across the board, and included: green bar soap (9%), washing powder (10%) and bath soap (5%); toilet paper, toothpaste, Vaseline, cream, Handy Andy, dishwashing liquid, deodorant, and sanitary pads. The escalation in price of green bar soap, in particular, has raised concern. This long bar of magic green soap can do almost anything related to cleaning of bodies, clothes, dishes, homes; and simply must be bought.

The cost of basic hygiene products is high. These products compete in the household purse with food. These products are essential for good health and hygiene. Not much notice is taken on how women find the money to buy these products, and yet these are essential for good health, and hygiene; but also, in having a sense of dignity, being able to function in society and being accepted.

Year-on-year the household domestic and personal hygiene products index increased by R68.07 (9,5%) bringing the total average cost of basic household domestic and personal hygiene products to R785.84.

Workers

The National Minimum Wage is R23,19 an hour and R185,52 for an 8-hour day. April 2022, with a short working-day month of 18 days, the maximum National Minimum Wage for a General Worker is R3 339.36.

Transport to work and back will cost a worker an average of R1 152.00. Electricity will cost a worker an average of R731.50. A basket of basic but nutritious food, for a family of 4 persons, will cost a worker R3 139.37. Together these three core expenses come to R5 022.28.

Because food is bought after monies for transport and electricity have been paid for or set aside, in April 2022, the index calculates that workers’ families will underspend on food by a minimum of 53,6% this month

The study goes on to add that the majority of South African workers do not earn enough money to cover their basic expenses each month.

It means that in a crisis, there is no savings buffer. The spikes in the food basket are not being absorbed by workers, because there is no extra money to pay for the higher prices. Instead, workers cut back further on their family’s basic consumption, get sick more often, are more stressed and distracted, are less productive; and have less money to spend, and spread in the broader economy.

 

South Africans are becoming poorer, FNB warns

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.”

Inflation

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.”

In light of rising food prices following the nationwide drought and weakened value of the rand, employers can expect additional pressure from employees for annual salary increases. Many employees are desperate for an increase in order to make ends meet; however, the challenging economic climate makes it difficult for employers to provide an annual raise to their entire staff. Employers must therefore approach the situation very strategically.

This is according to Francois Wilbers, MD of Work Dynamics – a leading organisational psychologist consultancy in the country, who says that often the workforce doesn’t realise that employers are exposed to exactly the same circumstances and are also battling to keep a steady revenue stream. “Granted, in larger corporations, the extent to which they are exposed is less than in smaller organisations, as smaller establishments experience the economic changes with far more severe financial consequences.”

Wilbers says that it is important to note that salary increases are not regulated by labour legislation, except in as far as may be provided for in any agreement or collective agreement, where provision is usually made for annual wage or salary negotiations. “Essentially, in the absence of any such agreement, salary increases remain a matter of mutual interest between employer and employee, therefore, there is no obligation on the employer to grant annual increases. With that said, if any party in a relationship finds it necessary to refer to the ‘terms of a contract’ as a point of departure in engaging with each other, it says something about the nature of trust between the parties.”

Wilbers adds that in cases where employers cannot afford to pay an increase equal to the consumer price index (CPI), they need to be honest with their staff members and accept the premise of them seeking alternative employment. “It is absolutely essential to maintain an open dialogue rooted in transparency and honesty in order to handle the situation effectively. For example, don’t use the detrimental state of the economy as an excuse to not grant your employees annual increases if you are still increasing profitability.”

When trying to asses the best option for your organisation, the retrenchment of staff members is a pressing threat that must be avoided at all costs, he explains. “For organisations in financial distress one of the most common ways to solve the problem is to retrench staff. From a socio-economic point of view, employers should try to avoid retrenchments and rather think of more creative alternatives. This option is especially less desirable in our country, as our unemployment rate of 25% is of the highest in the world.

“In addition to the socio-economic impact of retrenching staff, the effects on employee morale can be devastating, especially if the process is not handled in a professional and transparent manner. First prize is to avoid retrenching staff altogether.”

Wilbers explains that there are a number of alternatives that can be implemented to avoid the process of retrenchment and that these could end up being a mutually beneficial solution. “One of the most common steps organisations take is to forfeit guaranteed year-end bonuses and to rather assign bonuses according to targets that are achieved.

This incentive system is a great tool for maintaining committed and hardworking employees, while weeding out those that are not target driven, says Wilbers “In extreme cases, organisations can also implement salary cuts rather than retrenchment. “Again the key here is mutual honesty between employer and employee. The employer could for example allow the employee to take on freelance opportunities in order to supplement his or her decreased salary.”

Wilbers continues that other tried and trusted alternatives to retain staff is to implement annual increases subject to affordability, on a ‘pay-as-you-go’ basis. “Here you would have to decide whether you can actually afford the increase. You would have to look at the company’s performance over the first quarter and then see whether you can afford to pay an increase for that quarter. Increase will be paid in the form of a cash amount for the first quarter or spread equally over the second quarter.”

Some orgnisations opt for a performance-based pay on top of current salaries. “In exchange for sacrificing annual increases, staff will be offered the opportunity to earn incentives if targets are achieved. These targets must be set in such a way that there will actually be enough money available to fund the incentives.”

Another effective way would be to pay certain allowances to key staff – despite the difficult economic times – is for companies to keep in mind that they still have to compete for talent, explains Wilbers. “If you are afraid you may lose some of your key staff, consider paying them an allowance to retain their services, without giving an annual increase to other staff.”

“Ultimately, organisations differ in their ability to sustain staff and afford salary increases. Retrenchments in harsh economic conditions should always be avoided. The key is to seek solutions that will be of mutual interest to the employer and employee and engage in a proactive and honest way to find creative solutions,” concluded Wilbers.

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