Tag: inflation

No end in sight for consumer pain

By Ashley Lechman for IOL

There seems to be no reprieve for South African wallets as another hefty fuel increase is predicted for next week, as well as economists anticipating further interest rate hikes.

The Organisation Undoing Tax Abuse (Outa) said on Monday it predicts that motorists could be paying R1.75 more for fuel from July 6.

Citizens could soon be sounding the alarm bells, as the South African Reserve Bank, will also be looking to curb the spiking inflation in the country by raising interest rates once again at its next Monetary Policy Committee meeting.

The Reserve Bank has been on a trend of raising the interest rate since the start of the year, as the country recovers from the Covid-19 pandemic.

Adding to the pain felt to the wallets of many, the continuing crisis in Ukraine affects wheat and cooking oil prices, driving up the price of many food items.

In an effort to provide some form of relief, Outa has urged the government to extend the R1.50 general fuel levy.

“We really do need to see longer-term solutions, but for now, the short-term solution is the only space government can provide some reprieve, and that is in the fuel levy,” Outa CEO Wayne Duvenage said.

“Outa believes it would be prudent for the minister of finance to consider extending the fuel levy reprieve of R1.50 per litre.”

Minister of Finance Enoch Godongwana extended the general fuel levy relief on May 31 this year, saying it would be R1.50 until July 6, then drop to R0.75 until August 2.

“Petrol is extremely expensive now. It is impacting on inflation. It is impacting on commuter pricing. So instead of dropping it to R0.75 for another month, keep that R1.50 reprieve in place,” Duvenage added.


Big changes coming to Spar stores

Source: Supermarket & Retailer

Retail group Spar has warned of increased inflationary pressures in the coming months, with consumers expected to remain under financial strain as the cost of living increases.

In its interim financial results published on Wednesday 8 June, the group said it plans to address this by increasing its promotional calendar for the period ahead to continue to attract cash-strapped consumers.

The group is also planning to revamp its fresh food offering – including fresh produce, butchery, bakery and home meal replacement.

Liquor sales are also expected to rebound in the absence of further pandemic-related liquor trading restrictions, the group said.

Spar also plans to fully stake its claim in the online shopping space in the coming months as it ramps up the rollout of its new online shopping platform, SPAR2U. The e-commerce platform will deliver both groceries and liquor, with the service already being piloted in some stores.

“There is great enthusiasm from our independent retailers to implement SPAR’s new online shopping platform, SPAR2U. Our online platform is receiving positive reviews and a large number of stores are preparing to launch online within their communities in the coming months,” the group said.

SPAR2U launches in a crowded online same-day delivery space – with Pick n Pay, Woolworths and Checkers all offering same-day delivery services. Checkers’ Sixty60 one-hour on-demand grocery delivery service launched in late 2019, just prior to the onset of the Covid-19 pandemic in early 2020.

Pick n pay acquired the Bottles app in October 2020, rebranding it to asap! in 2021. Woolworths launched its same-day service Woolies Dash in December 2020.

Financial results

Spar South Africa reported solid growth, with wholesale turnover increasing by 7.7% to R43.8 billion. Groupe operating profit increased to R1.83 billion (+7.1%), while headline earnings per share increased to 642.6 cents (+3.5%).

The core SPAR wholesale grocery business reported a meaningful recovery in sales growth of 4.6%, assisted by increased marketing initiatives at retail, and unrestricted liquor trading, which drove increased footfall to Spar stores.

Core business trading continued to be impacted by the stores which were closed due to the civil unrest in July 2021. At the end of the period, 13 Spar format stores and nine Tops at Spar stores remained closed.

Following the lifting of the Covid-19 nationwide liquor trading bans in September 2021, TOPS at SPAR made a strong recovery, increasing turnover by 41.6% for the period. On a combined basis, wholesale grocery and liquor turnover increased by 8.5% for the period.


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.”


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.”

Source: Supermarket & Retailer

Consumer price inflation for 2020 was the lowest in 16 years and the second lowest in 51 years as demand remained muted on the effects of the Covid-19 lockdowns.

This could give stimulus to the SA Reserve Bank (Sarb) to leave unchanged or cut interest rates when its Monetary Policy Committee wraps up its first meeting of the year tomorrow.

Data from Statistics South Africa (StatsSA) today showed that the average annual inflation rate for 2020 was a muted 3.3 percent, the lower end of the Sarb target band.

StatsSA said this was the lowest annual average rate since 2004 at 1.4 percent and the second lowest since 1969 at 3 percent.

According to the Sarb, one of the reasons for low inflation in 2004 was a firmer rand, which strengthened from R7.56 to the dollar in 2003 to R6.45 in 2004.

StatsSA said annual inflation ended 2020 at 3.1 percent in December, slightly lower than November’s reading of 3.2 percent.

The monthly increase in the CPI was 0.2 percent, up from zero percent in November.

The main contributors to the 3.1 percent annual inflation rate were food and non-alcoholic beverages; housing and utilities; and miscellaneous goods and services.

StatsSA said that three food groups recorded above average annual and monthly price increases in December as meat prices rose by 7.3 percent from a year ago and by 1.2 percent from November.

Prices in the oils and fats category climbed by 10.2 percent over 12 months and by 1.6 percent over one month.

Inflation in sugar, sweets and dessert products recorded an annual rise of 8.4 percent and a monthly rise of 1.1 percent.


Source: IOL

South Africa’s Competition Commission told the Portfolio Committee on Trade and Industry that since the national disaster was declared in March, it had received a total of 1 354 complaints and tip offs from the public regarding inflated prices.

The committee was told that these complaints concern allegations that retailers, traders, suppliers and pharmacies are charging excessive prices for Covid-19-related products, including masks and sanitisers, personal protective equipment (PPE) and other essential goods and basic food items.

The complaints have been investigated in terms of Section 8 of the Competition Act, which prohibits excessive pricing.

According to parliament, some of the complaints relate to price increases of 1 000%.

“In two instances, firms pleaded guilty and agreed to pay a fine after the matter was handed over to the Competition Tribunal. Covid-19-related pricing investigations by the tribunal have so far led to 13 settlements through consent orders. The total value of the settlements is R12 854 694. Special Tribunal Rules for Covid-19 price-gouging matters to be heard on an expedited basis were also published,” a statement from parliament read.

The committee heard that government regulations relating to the national disaster prohibit dominant suppliers from charging excessive prices for certain specified goods and services, mainly basic food and consumer items, medical and hygiene supplies, and other emergency products and services.

“The Block Exemption regulations exempt categories of anticompetitive agreements or practices in some industries from applying Sections 4 and 5 of the Competition Act. The Commission said that authorities should be on high alert as the economy opens up, as some companies, such as airlines, may be planning to increase prices by up to 50%. Regarding the National Consumer Commission (NCC), the committee heard that from 23 March to 12 May, the NCC received 2 900 calls on its Covid-19 toll-free hotline.”

A total of 2 533 (87,3%) calls were answered and 367 (12,7%) were lost/abandoned. Of the 2 533 complaints received to date, 1 618 complaints alleged price gouging relating to regulated essential products. The remaining 915 complaints were not related to the regulation. These complainants were referred to the relevant platforms.

Committee Chairperson Duma Nkosi, said, “The committee will continue to engage with all its entities and the department in order to monitor their work, progress and support provided to South Africans, especially during the national disaster period.”

After taking inflation into account, the average South African earned 1.5% less in December than in the same month in 2015.

December’s average monthly pay after taxes and other deductions was R14,102 and the median was R10,397, according to the BankservAfrica Disposable Salary Index (BDSI) released on Tuesday.

Ignoring inflation, South Africans on average received 5.1% more in December than the same month the previous year. But adjusted for inflation, December’s average pay came to R11,309 — 1.5% lower than R11,484 in December 2015.

“Real salary adjustments in December reflected the longest — and fastest — decline since the index started in 2011. Furthermore, this is the seventh consecutive month that salaries have fallen year-on-year in real terms,” BankservAfrica head of information services Caroline Belrose says.

“Employees in the South African formal sector have certainly not had anything to cheer about in 2016 — the weak rand and drought had a devastating impact on real incomes and expenses of employees and their families,” Economists.co.za chief economist Mike Schüssler says.

There was a silver lining in that there was a slight increase in the number of employees on the interbank payment system. This was 0.7% higher than in December 2015.

Like salaries, private pensions showed real-term declines year-on-year. The BankservAfrica Private Pensions Index of pensions that are paid into South African bank accounts showed a 1.7% year-on-year decline in real terms.

By Robert Laing for www.businesslive.co.za

South Africa continues to experience slow growth in disposable salaries, according to the latest BankservAfrica Disposable Salaries Index (BDSI) released last week.

The nominal trend indicates further increases could be even smaller than currently seen, but remain above the inflation rate.

The trend in total payments of disposable salaries and pensions shows consumers will not be in a strong position this year, according to Mike Schüssler, chief economist at Economists dotcoza.

At the same time, he pointed out, pensioners are still not well off by any stretch of the imagination.

“Last month the increase in disposable salaries of 6,5% on a year ago barely beat inflation, which sits at 6,3%,” explains Dr Caroline Belrose, head of knowledge and risk services at BankservAfrica.

The average monthly take-home pay for March 2016 was R12 501. This still outpaced banked pensions, even though the BankservAfrica Private Pensions Index increased at a faster rate than salaries and was up by 7,4% for the year.

The average pension as paid via the payments system of BankservAfrica for March 2016 came in at R6 075.
Schüssler explained that the slowdown in disposable salary growth is also impacted by personal income taxes that were effectively raised again by not being compensated for inflation. This is called bracket creep and means that as people’s salaries or pensions go up to compensate for inflation, they enter a higher tax bracket. Therefore, in real terms they are taking home the same amount.

The salary of employees in the middle of the salary spectrum outpaced those at the higher end due to more people slowly moving up the employment ladder. The median salary shows a growth of 7.2%, which is again better than the average salary.

The typical pension increased by 13.4% on a year ago, and shows that many pensioners have kept up well with inflation. But pension payments are still less than half of salaries.

The typical salary came in at R9 282 for the month of March, while the typical pension was R4 259. The increases for both medians outpaced inflation in March 2016.

The total combined payments of salaries and pensions grew by a total of 7.2% over the year to March 2016. It is the seventh month that the total payments have been within 50 basis points of 7%.

This is slower than the period of July 2014 to March 2015, where only one month had a growth rate in single digits. While BankservAfrica still excludes payments to bank accounts that are over R100 000, the total averaged over R47,8-billion.

“The slowing trend in the total payments for salaries and pensions is probably the best indicator that the current growth in retail sales is coming from the falling sales of big ticket items such as cars,” explains Schüssler.

“There is likely to be a bit of extra consumer credit growth driving retail sales too. The faster increase of median and average pensions was unexpected. But as we do not have a long history of data, it is difficult to have foreseen this.”

He believes retail sales will no longer be growing at a real rate of 4% or even 3% within the next few months.

“Interest rate hikes and slower salary increases based on last year’s low inflation numbers will limit the employee’s ability to spend. This is bad news for large item sales like cars and furniture. It is likely that retailers will struggle for real growth in the next few months,” says Schüssler.

By Carin Smith for www.fin24.co.za

In a highly debated article, Investec’s Brian Kantor went knocking on the South African Reserve Bank’s door, pleading with them to focus on the things they have control over. His main concern is that of stagflation.

And while high inflation is usually cornered by higher interest rates, that’s the case when it’s demand driven. And he argues in South Africa’s case, it’s due to factors beyond the Reserve Bank’s control.

The Bank wasn’t listening and raised rates, using high inflation as the reason.

In economic theory there are two types of inflation:

Cost Push Inflation: This is price increases caused by increased costs of production (increased labour costs, increased costs of raw materials (think higher oil prices due to unrest in middle east, or increased prices for agriculture products due to droughts that are limiting supplies).

Demand Pull Inflation: Demand pull inflation is experienced when there is an increase in demand for goods and services, or when the demand for goods and services outstrips supply of goods and services. Strong growing economies will have increased demand for goods and services as more people are employed. Leading to increased inflation.

SARB’s main tool to control inflation is interest rates. The problem with interest rates is that it is a very crude tool to control inflation. The theory goes that if inflation goes up, it implies that there is too much money available to spend in the economy, and retailers and wholesalers know this, and they start pushing up prices to earn higher margins on their products, causing inflation to rise (Demand Pull inflation).

While this might be true for a fast growing economy. This is hardly ever the case for an economy with sluggish growth, as South Africa is currently experiencing. Interest rates are not as effective in controlling inflation when it is caused by Cost Push factors.

Now that South Africa’s inflation rate has breached the 3% to 6% target of SARB, they need to act (and they have been acting over the last couple of months by increasing interest rates). Problem with increasing interest rates to control inflation, when inflation is caused by external factors and shocks (Cost Push inflation), and not by increased demand (Demand Pull inflation).

Overall demand in the economy will slow down as interest rates lowers the amount of money people have to spend on buying goods and services as more of their money goes towards paying their debt,

Yet there is nothing to suggest that inflation would slow down too as it is not caused by increased demand. In essence we can end up with continued high inflation and lower economic growth (since higher interest rates is slowing down spending in the economy). High inflation and low to no growth…That’s called Stagflation. And this is the situation South Africa is in.

SARB is walking a very tight rope and needs to be careful when deciding on interest rates, as they can end up doing more harm than good by blindly increasing interest rates as inflation goes up. We suspect that the last couple of interest rate increases has been more to protect the vulnerable Rand than controlling inflation.

Higher interest rates leads to more foreign currency flowing into SA to take advantage of higher interest rates, leading to increased demand for the Rand, and it strengthening. A stronger Rand will also ensure that we import less inflation. Import inflation occurs when prices of goods being imported becomes more expensive as the Rand weakens, leading to those goods costing more in Rand terms.

SARB will never admit or acknowledge that they might be increasing interest rates to protect the Rand, as that is not their mandate, but we suspect they are more worried about that Rand than they are about inflation at this point in time, as they know current inflation trends is not due to increased demand in the economy, but due to external factors outside their, or consumers control.

By John Maynard* for www.fin24.com
* This is a nom de plume

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