Pull the other one!
Official inflation of 3,7% and the impact on your household budget are different animals
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.