Pull the other one!

Of­fi­cial in­fla­tion of 3,7% and the im­pact on your house­hold bud­get are dif­fer­ent an­i­mals

Finweek English Edition - - MONEYCLINIC - BRUCE WHIT­FIELD brucew@fin­media24.com

SORRY, UN­LESS YOU crack the Na­tional Lot­tery jack­pot, be­come the ben­e­fi­ciary of an un­ex­pected in­her­i­tance or get a huge pro­mo­tion with the at­tached salary in­crease some­time soon, your stan­dard of liv­ing is about to plum­met. Be grate­ful at least the SA Re­serve Bank uses the of­fi­cial in­fla­tion rate upon which to base its in­ter­est rate de­ci­sions, other­wise we’d all be in se­ri­ous trou­ble.

While that of­fi­cial mea­sure stands cur­rently at 3,7% – com­fort­ably within the 3% to 6% tar­get range laid down by South Africa’s Na­tional Trea­sury – mid­dle class house­holds are ex­pe­ri­enc­ing far more sig­nif­i­cant cost of liv­ing in­creases than the of­fi­cial fig­ures sug­gest. And there’s very lit­tle they can do about ame­lio­rat­ing the mount­ing im­pact of those cost pres­sures on their monthly bud­gets.

Cash-strapped com­pa­nies are also be­com­ing in­creas­ingly con­ser­va­tive in terms of the quan­tum of wage in­creases they’re pre­pared to of­fer, says PE Cor­po­rate Ser­vices MD Martin Westcott.

Pub­lic sec­tor work­ers whose wages make up 40% of SA’s an­nual tax take – and whose cost to the fis­cus has dou­bled over the past five years – are laugh­ing in the face of Gov­ern­ment’s re­cent 4,6% wage of­fer, de­mand­ing in­stead 10%. SA’s unions will fight tooth and nail to se­cure higher wage in­creases for their mem­bers, re­gard­less of the macro-eco­nomic con­se­quences as the real cost of liv­ing out­paces the of­fi­cial in­fla­tion fig­ure. Re­serve Bank Gov­er­nor Gill Mar­cus openly ac­knowl­edged the im­pact of those cost pres­sures in her March MPC state­ment, cit­ing hous­ing and util­i­ties, pri­mar­ily elec­tric­ity and petrol prices as cause for concern, but it runs deeper than that.

Un­der­ly­ing con­sump­tion-driven in­fla­tion may be un­der con­trol, but it’s the ad­min­is­tered price in­creases that are hav­ing the big­gest im­pact on monthly bud­gets. The av­er­age of­fi­cial CPI num­ber is ex­pected to re­main within the tar­get range to year-end 2012. That fig­ure is vul­ner­a­ble to the volatile oil price, which in­creased US$20/bar­rel in the two months be­tween the first MPC meet­ing of the year and its March gather­ing. Com­men­ta­tors warn that even a 10% de­cline in the rand’s value could se­ri­ously im­pact con­sumer in­fla­tion. “The strong rand has shielded South Africans from things like higher global food prices,” says Graeme Korner, founder of Al­pha Equity. “It won’t take much to change that.”

With reg­u­lated prices ris­ing three times more quickly than the cost of con­sumer goods in Fe­bru­ary it’s clear where the pres­sure is build­ing and it’s only a mat­ter of time be­fore in­creases in ad­min­is­tered prices in­evitably rub off on con­sumer in­fla­tion.

It re­mains to be seen what tar­iff the Na­tional Roads Agency will ap­ply to the Gaut­eng free­way sys­tem af­ter protests saw its ear­lier 66c/km tar­iff shelved un­der sig­nif­i­cant pres­sure. Even pass­port prices are go­ing up by way more than in­fla­tion: Home Af­fairs an­nounced last month new is­sues of the doc­u­ment would cost R400 – dou­ble the pre­vi­ous charge. In it­self that might not be in­fla­tion­ary, but it does in­di­cate the pres­sure on costs for mid­dle class fam­i­lies.

“Ad­min­is­tered prices are a ma­jor concern,” Mar­cus said. While Eskom is pass­ing on the lat­est of its reg­u­lated 25% in­creases over the com­ing months, con­sumers in dif­fer­ent mu­nic­i­pal­i­ties will be af­fected dif­fer­ently. For ex­am­ple, Jo­han­nes­burg res­i­dents will be charged 35% more for their con­sump­tion by lo­cal util­ity City Power, which is un­der pres­sure to main­tain age­ing in­fra­struc­ture. Jo’burg­ers will also pay 13% more for wa­ter and 6% more for rub­bish col­lec­tion. Pres­sure groups say mu­nic­i­pal bills coun­try­wide in fourth quar­ter 2010 were 46% more than the com­pa­ra­ble quar­ter in 2009. Add to that the rapidly ris­ing cost of med­i­cal aid and pri­vate school fees and it’s not hard to see why crit­ics of CPI see it as a statis­tic rather than an ac­cu­rate mea­sure of real in­fla­tion.

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