As the cost-of-living crisis continues to squeeze South Africans, the cost of groceries is widely expected to be the biggest increase in consumers’ spending over the next six months.
A PwC Voice of the Consumer Survey 2024 found that 77% of South African consumers expect this to be the case. At the same time, 75% of them rank inflation as the number-one risk that could affect the country over the next year, followed by macroeconomic volatility (55%) and social inequality (40%).
The TransUnion Consumer Pulse survey for Q2 of the year yielded similar news, with 77% of consumers saying one of their three biggest concerns was inflation for everyday goods such as groceries and fuel, 55% saying they were worried about interest rates, and 52% saying they were concerned about jobs.
Daily Maverick compared the prices of a basket of goods each month over 18 months from December 2022 to June 2024. The total basket cost increased 11%, from R967.13 to R1,072.16, almost double the inflation rate in May 2024.
Inflation has been moderate in 2024, moving from 5.6% in February to 5.2% in May, and economists expect the plateau to continue. Koketso Mano, senior economist at FNB, supports the outlook that consumers presented in the PwC survey. She says food pressures are likely to intensify in the second half of the year on the back of adverse weather conditions and as higher soft-commodity prices reach retail shelves.
“Slowing global inflation, softer oil prices, a less-depreciated rand and subdued domestic demand should support slowing inflation going into 2025,” Mano said. “In line with this, headline inflation should average just above 5% this year, before slowing closer to the 4.5% midpoint.”
The food basket Daily Maverick used for this article included regularly bought items such as rice, milk, bread, peanut butter and chicken.
Frugal spending trend
Anton Hugo, Africa retail industry leader at PwC, says consumers largely accepted the price increases of the Covid era, but they are showing little tolerance for continued rises, especially as they turn their attention to mounting non-discretionary spending.
“This has resulted in consumers searching for better value for their money, with 44% saying they would consider switching from their preferred brands to more affordable options, while only 7% said they would buy a luxury item with their leftover income after paying for bills and essentials,” Hugo said.
Practically, this has translated to more consumers (83%) comparing prices between apps, 75% saying they prefer in-person shopping, and 69% using apps to view prices before making a physical shopping trip.
The Deloitte South African Consumer Signal report for Q1 2024 found that, faced with a shrinking discretionary income, South Africans were indeed prioritising key expenses such as groceries. The report insights showed that frugal behaviour remained high and consumers were focusing on essential groceries and reducing food waste. Among those surveyed, 42% cooked more meals at home.
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“As South African consumers remain under pressure, most of their budget goes towards essentials,” noted Rodger George, consumer industry leader for Deloitte Africa. He pointed out that consumers’ food-buying behaviour remains one of the strongest measures of economic health.
The impact of food prices is also motivating South Africans to change their eating habits. Lullu Krugel, PwC Africa’s sustainability leader, says consumers indicated a growing interest in plant-based diets. This could hint at a rising awareness of the environmental burdens posed by traditional meat production, but it could also point to meat and poultry being too expensive for many consumers.
As many as 67% said they intended to increase their intake of fresh fruits and vegetables over the next six months, whereas a smaller but important group of 26% planned to reduce their red meat consumption.
Increasing use of debt
Neil Roets, chief executive of Debt Rescue, says there has been a significant surge in debt counselling enquiries, reflecting a worrying trend in the financial behaviour of South Africans. “With little relief in sight with regard to living costs, this is likely to intensify as the year unfolds,” he warned.
Benay Sager, executive head of DebtBusters, says its data reflects an increasing use of credit cards. Immediately after receiving their salary, consumers transfer a big portion to their credit card – big enough to service the minimum balance so they can keep afloat.
“Average interest rates for unsecured credit, of which credit card is a portion, are hovering around 25.7%. This is some of the highest we have seen since 2016. So that is pretty expensive credit, especially if you are unsure as a consumer whether you will make the necessary payment by day 55,” Roets observed.
Standard Bank’s credit card division confirms this, saying that despite high interest rates, only a small percentage of credit card users take advantage of interest-free periods. According to the bank’s analysis, only 20% of credit card holders have benefited from its 55-day interest-free period at least once in the 12 months to December 2023, and only 11% have benefited more than once.
Tumelo Ramugondo, credit card head at Standard Bank, explains that “the concept of an interest-free period simply means that the bank will not charge you interest if you pay off your credit card balance in full for purchases made before the due date”.
“Interest-free periods can be an effective way to help you better manage your money. Because, if you follow this concept every month, you simply pay the same amount that you used without incurring any additional interest,” Ramugondo said.
Roets says one of the main drivers in the cost-of-living crisis is the “astronomical interest rate” people are paying on home and car loans and other big debt. Monthly home loan repayments are now at least 40% higher than three years ago.
“This necessitates a diversion of spend from necessities like food and healthcare,” he said.
Car spending choices change
This is further borne out by statistics from the car industry, where a marginal increase in the average loan amount is evidence that many households are opting for one multipurpose vehicle rather than maintaining multiple vehicles.
WesBank’s data shows the average loan amount on a new vehicle increased 3.5% during June; the average deal duration increased 3.8% to more than 51 months; and the average contract period is also now more than 73 months compared with a year ago.
“These are all signs of affordability challenges that either indicate that consumers are holding on to their existing vehicles for longer, or that they are forced to lower instalments by extending the loan period,” said Lebo Gaoaketse, head of marketing and communication at WesBank. One of the primary factors affecting debt remains high interest rates, and relief is expected only during the second half of the year.
Gaoaketse offered an example using the average loan value of R410,000 at WesBank in June: over 72 months at the prime lending rate (11.75%), the instalment is an estimated R8,054.83. An indebted customer who financed the same value vehicle in 2020, linked to a prime rate of 7%, would be paying R1,015.81 more a month today. At current interest rates, this would equate to paying R75,730.32 more for the same car over the same contract period.
“Layer in the other inflationary costs of living to that consumer and you can imagine the pressure on household budgets,” said Gaoaketse. “Those with an option to delay a purchase decision or opt for alternative mobility solutions, including e-hailing, sharing or the pre-owned market, are voting with their feet and exiting the new vehicle market.”
Nicky Weimar, an economist at Nedbank, says he expects the pressure on households to start easing in the second half of the year as inflation drops and rate cuts are expected.
“We expect inflation to moderate gradually to 4.8% in December 2024, and we expect the Reserve Bank to begin cutting interest rates in September, with two reductions of 25 basis points each, taking the prime rate to 11.25% by the end of the year,” Weimar said.
Fuel price drop just a ‘drop in the ocean’
Ester Ochse, product head at FNB integrated advice, says the decrease in the petrol price will provide some welcome relief. From 3 July, motorists are paying R23.26 per litre for 95 unleaded petrol, 99 cents less than in June, and R22.86 for unleaded 93, just more than R1 less than in June.
“If you have a car that takes 50l of petrol, you could save about R50 on a tank. That’s a nice little sum that could go towards paying off debt or saving towards an emergency fund,” Ochse said.
The Automobile Association points out that the decreases in the fuel price in June and July marked the first time this year that prices have fallen for two consecutive months. Drivers have been hit very hard with four consecutive hikes in petrol prices earlier this year.
Roets says the decreases are welcome, but they are “a drop in the ocean for motorists and commuters who have already been hit very hard by four consecutive hikes in petrol this year, and who now have to contend with yet another massive hike in electricity prices”.
Municipalities have just implemented electricity tariff increases from 1 July. Increases for Johannesburg and eThekwini are 12.72%, and Cape Town residents had an increase of 11.78%. The City of Joburg is now backtracking on a recently implemented R200 (R230 with VAT) surcharge for prepaid electricity users after a backlash from residents.
Downscaling still name of the game
The latest FNB Estate Agents Survey reveals a housing market weighed down by election anxiety and persistent affordability constraints. The survey also dives into the motivations behind property sales.
Downscaling because of life stage, which includes those moving to retirement homes, remains the most common reason in South Africa, accounting for 22% of total sales. Financial pressure-induced sales rose slightly to 21% in Q2 of this year, aligning with the historical average and suggesting a persistent trend of sellers motivated by high debt service costs.
“The survey reveals a preference among these financially motivated sellers to downsize rather than rent, reinforcing the continued buying-down trend,” said Siphamandla Mkhwanazi, senior economist at FNB.
“Upgrading activity slowed significantly to 11%, reflecting a cautious approach by homeowners in the current market climate.”
Lee Naik, chief executive of TransUnion Africa, points out that, although new loan amounts have shrunk, total outstanding home loan balances have increased 7.6% year on year, implying that existing home loan borrowers are leveraging their home equity for liquidity.
“Consumers are likely drawing on their existing home loans due to more favourable interest rates relative to the cost of new credit issuance across consumption-led products, Naik said.
“Simultaneously, home loan delinquencies deteriorated, alerting lenders to adopt a more active approach to anticipating and managing delinquencies that may arise from consumers who may be experiencing a payment shock due to high interest rates,” he said.
While those who already own property seem to prefer to downscale, others who have yet to enter the property market are seemingly stuck renting until their affordability improves.
The TPN Tenant Survey report for 2024 reveals that financial barriers are the reasons for most tenants choosing to rent rather than buy, along with flexibility and political uncertainty. TPN is a credit bureau that tracks tenant behaviour and develops rental payment profiles.
Almost 10% (9.9%) of more than 170,000 tenants surveyed could not buy property because of poor credit records, and 48% simply couldn’t afford to buy property.
However, the rental deposit requirements mean that tenants need to have a nest egg – unless they are simply transferring a rental deposit from one lease to another as they move.
Samuel Seeff, chairperson of the Seeff Property Group, says South Africa is still in one of the best buyer’s markets despite the higher interest rate.
“The flat price growth means you can buy at prices that are very similar to what they were two years ago, especially at the higher price bands. If you can afford property at the current interest rate, you stand to benefit when the rate drops and the market improves, not only from a lower home loan repayment, but prices will also tick up once the market starts moving with a degree of vigour,” he said. DM
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.
