3 things that will hit South Africa’s middle class in the coming months

 

Rising living costs, primarily due to higher transportation and utility prices, will be a major consideration for the middle-market in 2022 with finances expected to come under additional pressure, says Rob Gwerengwe, chief executive of FNB Middle Market.

Gwerengwe highlighted three pressures in particular, including:

• Rising fuel prices – which will impact all transport costs;
• Higher vehicle prices;
• Electricity and utility price increases.

“Because of higher oil prices globally, domestic fuel prices have gone up significantly, eating into consumer’s discretionary income. This has fed through to public transport prices as well,” he said.

“The lower-middle-income segments tend to be disproportionately affected by these costs, as they allocate a bigger proportion of their income to transport. Looking ahead, however, consumers should look for some reprieve in the latter part of the year, as oil supply increases and prices start correcting.”

Gwerengwe said the upper-middle market also has to contend with higher car prices, due to global supply constraints. These supply pressures will likely linger for some time, before normalising towards the end of 2022 or the beginning of 2023, he said.

“Furthermore, electricity inflation should post double-digit increase once again this year as Eskom has applied for a 20.5% increase – translating to around 17% on the municipal level.

The good news

On a more positive side, Gwerengwe said that food inflation is expected to continue its deceleration from a currently high base. However, upside risks are presented by excessive rainfalls damaging crops.

Given these inflationary pressures and global economic developments, Gwerengwe also expects that interest rates will start normalising this year with a 75bps increase forecast in 2022.

“Still, the interest rates environment should remain fairly accommodative for some time, given that the economy still needs support and unemployment remains elevated and therefore demand is muted,” he said.

Another piece of good news is the expectation that lockdown restrictions will be easier this year as the impact of the pandemic on the health system wanes.

“We should see sectors such as tourism and hospitality operating more freely this year, which should open up more employment opportunities. These sectors tend to have high employment multipliers.”