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A consumer’s guide to 2016: What to expect and do

With certain basic necessities increasing way above inflation, consumers will have to tighten their belts.

With the State of the Nation address and the Budget Speech now past, many South Africans are wondering what 2016 holds for them and their personal finances.

Last year was characterised by stable levels of inflation (averaged 4.6%), low levels of economic growth (1% year-on-year Q3 2015) and a significant depreciation of the rand against many currencies (eg: 35% against the US dollar). This means that South Africans became poorer in real terms… but how will 2016 fair?

Unfortunately, the economic outlook for South Africa in 2016 looks very much the same, or worse. In the latest statement released by its Monetary Policy Committee (January 28 2016), the South African Reserve Bank (Sarb) announced that its inflation outlook had deteriorated and it expected inflation to average 6.8% in 2016 and 7% in 2017. This view indicates that Sarb believes that there will be a prolonged period where inflation will be outside of the upper limit of its inflation target (3% to 6%).

This is one of the reasons why Sarb saw fit to raise the repo rate by 50 basis points in January and, given the inflation forecasts for 2016 and 2017, consumers can probably expect more interest rate hikes in the coming months. Salary increases are forecast to be in the range of 6.5% to 7%, which means that consumers will probably experience a negative real increase once debt has been factored into their spending.

Looking back at historical inflation data, a number of items which make up a large portion of consumer’s spending have increased at rates that are significantly higher than the overall CPI between 2008 and 2015. Most of these items increased at 9% to 11% during 2015.

Education:

Item

2008

2009

2010

2011

2012

2013

2014

2015

Education including boarding fees

7.0%

10.4%

9.2%

8.6%

9.1%

9.0%

8.7%

9.4%

Primary and secondary education

7.0%

11.9%

10.1%

8.7%

8.5%

9.1%

8.2%

9.0%

Tertiary education

7.0%

8.4%

8.0%

8.5%

9.8%

8.8%

9.4%

9.8%

University boarding fees

6.8%

10.5%

9.4%

8.7%

9.6%

9.6%

9.7%

11.3%

*Source: Stats SA Data


Transport:

Item

2008

2009

2010

2011

2012

2013

2014

2015

Petrol

-1.8%

28.5%

7.8%

21.6%

13.0%

11.3%

-8.2%

10.1%

Transport

3.2%

5.6%

1.8%

7.0%

5.5%

6.5%

0.7%

4.8%

*Source: Stats SA Data

Medical expenses:

Item

2008

2009

2010

2011

2012

2013

2014

2015

Health including medical insurance

9.3%

10.9%

11.4%

8.8%

8.3%

9.2%

8.4%

8.9%

Medical insurance

9.8%

11.4%

13.2%

10.1%

9.4%

10.2%

9.0%

9.5%

*source: Stats SA Data

Housing and utilities:

Item

2008

2009

2010

2011

2012

2013

2014

2015

Electricity and other fuels

27.5%

21.1%

17.1%

15.7%

10.3%

7.2%

7.0%

11.0%

Water and other services

4.6%

9.4%

9.4%

9.2%

9.1%

8.0%

8.4%

9.9%

*Source: Stats SA Data

These are all items which are part of the basket of goods and services South Africans typically make use of on a daily basis. More bad news for the South African economy is that the International Monetary Fund (IMF) has cut its forecast of SA’s economic growth for 2016 from 1.3% to 0.7%, while their forecast for world economic growth is 3.4% in 2016 and 3.6% in 2017. These levels of growth would be slightly up on the 3.1% that the world output grew in 2015 – this would be positive for South African exports but negative for imports

The labour market will also be under pressure in 2016. Currently, the unemployment rate stands at 25.5% (Stats SA) and the outlook for 2016 is not positive, given the predicted low levels of growth and high levels of inflation in 2016 and 2017. This will most likely result in fewer voluntary job-leavers in the coming year, as there will be relatively few opportunities available in the labour market.

In summary, it appears that 2016 is going to be an even tougher year for consumers. Inflation rates above the upper limit of Sarb’s inflation target are going to hit the pockets of consumers a little harder than in previous years. With certain basic necessities increasing way above inflation, consumers will have to tighten their belts.

The only action a consumer can take is to cut spending (volume) or shop in cheaper avenues. Expected increases in the repo rate (in an effort to curb inflation) will also affect credit-active South Africans, further increasing their costs and reducing their discretionary spending.

Unfortunately opportunities in the labour market will be depressed given the 25.5% unemployment and economic growth at a mere 0.7%. The doubled effect of the rand’s depreciation and slightly stronger world economic growth expected in 2016, is a positive for South African exports which will be more competitive in the global economy. However this will increase the price of imported goods which again puts pressure on consumer spending.

In summary, 2016 will be a tough year for consumers and they will need to budget in a frugal manner in order to cut their discretionary spending, as they won’t be able to rely on real increases in salaries or improved job opportunities.

Bryden Morton is 21st Century’s Data Manager and Chris Blair is its CEO.


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