The announcement today by the South African Reserve Bank’s (SARB.) Monetary Policy Committee (MPC) of the steepest repo rate hike since September 2002 of a shocking 75 basis points as it moves to curb accelerating inflation and protect the weakened rand, will see consumers pushed to a whole new level of desperation. That is the widely held consensus of South Africans from all walks of life in the aftermath of this devastating news.
This comes shortly after Statistics SA announced on Wednesday 20 July that the annual consumer inflation spiked to 7.4% in June, from 6.5% in May, making the June rate the highest inflation recorded in 13 years – and taking inflation far above the South Africa Reserve Bank’s (SARB) inflation target range of between 3% to 6%.
CEO of Debt Rescue, Neil Roets, who has been a consistent voice for the consumer throughout the country’s escalating economic crisis, says that any way you look at it, this alarming hike in the repo rate is a signal to raise the red flags. “South Africans have reached the end of their rope. They have nowhere left to hide – in fact many more will now be looking financial devastation in the eye,” he warns.
To make matters worse, SA’s financial market gurus are already warning that consumers should brace themselves for yet higher interest rates this year amid accelerating global inflation. PwC South Africa senior economist Christie Viljoen expects the rate will increase several times over the next few years as monetary policy normalises to pre-Covid levels.
Independent economist Fanie Brink holds a different view. He says the inflation rate is determined by all the local and international political and economic factors that have an influence on the supply and demand of goods and services, as well as on the value of the currency and economic growth, and that, by increasing interest rate hikes, the banks are in the process of pushing the economy into a serious worldwide recession.
“Regardless of the rationale behind the steep interest rate hike – and the inevitable increase in living costs that will follow, it is simply unrealistic to place more financial strain on consumers at a time when people are grappling with unbearable financial pressure like never before” says Roets.
“South Africans are staggering under the weight of steep electricity and petrol price hikes, high unemployment, and a real decline in household income, but most frightening is the domino effect this will have on the price of food. Already we have 7 million people suffering from chronic hunger, and 20 million people are going to bed hungry every night. Are we going to see half the nation going hungry by the end of the year? We simply cannot allow this to happen,” he admonishes.
Food prices have exploded over the past year, and staple foods that families need for basic nutrition are no longer within reach of many South Africans – like cooking oil which has increased by 69% over the past year, brown bread by 15%, cabbage by 22% cake flour by 24%, polony by 17% and eggs by 14%. Investec economist Lara Hodes says food price inflation is expected to remain elevated, with prices of grain-related products, and oils and fats mostly at risk.
According to the latest Debt Rescue survey a worrying 68% of South Africans say they don’t have any money left at the end of month. “This means that, in the wake of the coming cost increases, consumers will simply incur more debt to cope with the additional living cost expenses,” he emphasizes.
“Realistically we are looking at even bigger numbers of consumers who will default on debt and fall into a very dark hole,” he warns. Debt Rescue has seen a sharp surge in the number of South Africans seeking debt relief. “My advice to those who are in a debt trap is to remember that you are not alone. Seek help from a registered debt counsellor who can assist you to manage your financial predicament,” he concludes.