SA inflation figures rise in June 2011

The poor in South Africa are having to tighten their belts faster than the wealthy, according to economist Tendani Mantshimuli from Liberty Group, because they spend a higher proportion of their incomes in the most affected food and transport categories.


That’s as the SA Reserve Bank Monetary Policy Committee or MPC meets in Pretoria to decide whether or not to raise the repor rate which have been static all year at 5,5%.

Food Prices

Consumer inflation moved back upwards to 5% in June 2011, at levels last seen in March 2010 said Ms Mantshimuli in a Summit TV interview. Usually rising inflation leads to the MPC raising rates to reduce buying – but the rate is now being driven more by cost of producing goods than purchases rising quickly.


"It’s bad news for the consumer and particularly for those in lower income categories where they face inflation of around 6.5%," said Ms Mantshimuli. "Trade unions are currently making wage demands in double digits because workers face this inflation on a daily basis."


Ms Mantshimuli said some categories with lower imported inflation based on the rand like high end electronics saw inflation reversed, but pointed out that lower income categories on a daily basis were not buying big screen TVs but were faced with rising transport costs, food and medical expenses, and administered prices like electricity that were not going to come down.


"We’ve seen a levelling in international food prices," said Ms Mantshimuli. She hopes that might help the poor going forward, but the rand is currently weaker than in 2010 when it served as a cushion.


With wage hikes in double digits raising the possibility of second and third round inflation, the reality was new jobs were not being created – and many had already lost their jobs – so there wasn’t much income left after costs to spend for many South Africans.


"The debt to disposable income ratio is not coming down as fast as we would have hoped to see," said Ms Mantshimuli, "the problem for many is working current debt levels down."


She felt the biggest problem was rising prices of necessities, with no increases in employment.


"Companies facing consumers are not going to see a lot of demand coming through in the figures – either financed by credit cards or disposable income – as consumers are still wary and there’s also the National Credit Act. We are not going to see a boom in consumer demand unless we see a change in employment, and I don’t see where that is going to come from.


"Even if there was an improvement in the second half, that’s not going to translate immediately for all those that lost their jobs."


Ms Mantshimuli expects only slightly better growth in 2012 with stabilisation of retrenchments, and the creation of a few formal sector jobs that would absorb some new entrants into the market.


The slight relief in the economy meant saving for retirement by South Africans – in the spotlight recently for being at an all-time low – was now inching up slowly as reflected in slightly lower savings policy lapse rates.


"It’s not like the height of the recession – we are meeting customers half way to keep their policies in the books reducing payments, rather than having them start all over again later on."


Although she believes we are going to breach the 6% upper limit of the inflation target, Ms Mantshimuli says it’s likely South Africas will now see an unchanged interest rate stance through to 2012.


"With the last MPC meeting I was of the opinion at the end of 2011 we would see an increase, but given the growth and sovereign debt problems in Europe and low growth in the US and at home the consumer is under too much pressure. Increasing interest rates would kill whatever nascent growth we are seeing."


Source -BusinessDay.co.za
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