Professional services firm PwC has published an analysis of the price increases that middle-class South Africans and other income groups can expect to pay in the coming months.
The upward pressure on food, fuel and electricity prices will adversely impact all households during 2022, the group said.
However, due to different spending abilities and priorities, households in different expenditure deciles will be impacted differently.
“For example, low-income households – deciles 1 and 2, based on Stats SA’s latest consumer basket and income surveys – spend more than half of their money on food and non-alcoholic beverages.
“This includes grain products, like bread and maize, which in coming months will cost significantly more due to higher international commodity prices.”
In turn, higher-income households spend a significantly smaller proportion of their money on foodstuffs.
“Households from decile 3 upwards will feel direct pressure on food budgets as well as rising electricity and transport costs. There will also be second-and third-round effects from higher electricity and fuel tariffs impacting on the cost of producing/ delivering other goods and services,” the group said.
“Furthermore, once non-fuel prices are adjusted upwards due to an increase in fuel costs, these prices are sticky downwards and are unlikely to decline if fuel prices moderate in the future.”
The upward pressure on commodity prices is also expected to adversely impact all industries during 2022. However, due to varying production cost breakdowns, individual industries will be impacted differently, PwC said.
“For example, primary and secondary sectors have very high exposure to fuel and transport costs in delivering their goods and services, with less dependence in the services sector. The factory sector has the highest exposure to elevated prices on agricultural products like wheat and maize.”
These soft commodities are key inputs in the production of food (e.g. cereals) for both human and animal consumption.
In turn, the agriculture, forestry and fishing industries have very high exposure to the cost of these manufactured feeds to produce meat and fish products, PwC said.
“The recent upward revision in headline inflation forecasts will impact wage settlements in the short to medium term. Higher overall inflation due to elevated food and fuel costs will translate into increased demands for remuneration adjustments.
“This would be especially challenging for the mining, construction, trade, business and public services sectors who have a very high exposure to the cost of labour.”
Middle-class and affluent South Africans most concerned
While lower-income South Africans are more likely to be impacted by the price increases, the latest FNB/BER Consumer Confidence Index (CCI) shows affluent consumers are now considerably more pessimistic about the outlook for the economy and their household finances compared to low-income households.
“The marked decline in the confidence levels of affluent consumers can largely be explained by the alarming images of Russia’s military invasion of Ukraine, unprecedented sanctions against Russia and the unfolding economic ramifications of this conflict.
“Soaring fuel prices and another 25-basis-point hike in the prime interest rate during the first quarter may also have started to squeeze the spending power of high- and middle-income consumers,” said FNB chief economist Mamello Matikinca-Ngwenya.
Skyrocketing international oil prices have already seen the domestic prices of petrol, diesel and paraffin shoot up by around R2 per litre since January, and further massive price hikes are on the cards for April.
On top of this, soaring global wheat prices are likely to spill over into higher food inflation, while economists expect another interest rate hike at the end of March – all of which will further increase the cost of living in South Africa.
“Even though low-income confidence remained seemingly impervious to the economic toll of the war during the first quarter, less affluent households will eventually be the hardest hit by spiralling fuel and food prices, as these categories make up a proportionally larger share of their household budgets compared to that of wealthy consumers,” said Matikinca-Ngwenya.
However, in the meantime, the extension of the R350-a-month social relief of distress grant to more than 10 million impoverished South Africans announced in the February 2022 national budget likely underpinned the confidence levels of low-income consumers, she said.
Read: Food prices to be investigated in South Africa – what you should know
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