Consumers face cash squeeze as prices rise

Good time to pay off debt as fast as possible

Petrol hike

By NICOLETTE SCROOBY
and ROUX VAN ZYL

Consumers will be feeling a drastic cash squeeze by the end of the year from rising inflation and interest rates, economists warned this week.

This follows the shock announcement on Tuesday that year-on-year inflation figures for April breached government’s six percent limit.

This virtually seals the case for Reserve Bank Governor Tito Mboweni to hike interest rates next Thursday for the first time since December, when the repo rate was lifted to nine percent.

Chief economist for T-sec, Mike Schussler, said consumers found themselves in a situation where prices were going up faster than before and salaries were not keeping up.

“So they have less to spend. Unfortunately we will see the pockets of the consumer being squeezed from both sides.

“Now is a good time to pay off your debt as quickly as possible and if you can’t, go speak to your bank manager,” said Schussler.

Econometrix Treasury Management economist, George Glynos, agreed, saying “this is not good news for anyone with some form of debt”.

“Higher prices are especially bad for poor people,” he said.

Looking at the reasons behind rising food prices, Schussler listed drought and increased fuel prices due to reduced refinery capacity worldwide as the two main culprits.

He also fingered shortages of various commodities such as electricity, gas and milk. Skills shortages also has an effect, Schussler said, adding that higher fuel costs increased labour costs.

Glynos said as people spent less, there would be a knock-on effect for retailers, manufacturers and producers, which created higher unemployment.

Schussler predicted inflation rates would keep rising.

“We have already seen a 3,1 percent increase in the first four months of this year,” he said.

But Glynos was more positive.

“I’m not sure if it will rise significantly further. I believe we are fairly close to the peak in the inflation cycle,” he said.

The Saturday Dispatch this week conducted a random survey of food prices at different retailers in East London.

Based on prices from the survey, the average price of the same product a year ago was calculated, using Tuesday’s inflation figures for the country.

According to the Consumer Price Index (CPI) figures, foodstuffs which showed the highest price increases were fruit and nuts (15,1 percent), fats and oils (13,8 percent), grain products (12,2 percent) and meat (10,6 percent).

In our basket, the most expensive food item was cheese costing R47,99 per kilogram – up slightly from R45,25/kg last year.

The full effect of rising milk prices do not seem to be reflected in the CPI figures, although basic foods like meat and grains rose 10,6 percent and 12,2 percent respectively.

Our mincemeat at R39,95/kg includes a massive rise of R4,25 from R35,71/kg.

Alcohol and cigarettes, subject to Finance Minister Trevor Manuel’s “sin tax”, were outperformed by price rises in most foodstuffs.

Alcohol prices rose by 6,3 percent, while cigarettes, cigars and tobacco prices rose by 9,4 percent.