As costs keep rising, South Africans keep buying assets but they borrow money so that they can eat, writes Lisa Steyn.
The past year has seen prices continue to rise and they have hit the poorest the hardest. But electricity costs have put a notable strain on the average South African and there are further tariff increases on the horizon.
According to the latest study on household income and expenditure for 2010-2011 by the University of South Africa's Bureau of Market Research, the largest expense for the middle class is electricity and water, at more than 15% of income.
The Labour Research Service inflation monitor for September showed housing and utilities have consistently contributed more to the percentage increase in consumer price inflation this year than food costs.
"We see that the rise in the cost of housing and utilities is clearly being driven by rising water and electricity prices," the service said. "The cost of living still remains high and these cost increases are exceeding the inflation rate."
This follows an electricity tariff increase of 25% a year since 2010 and a new application from Eskom asking the regulator to approve another annual increase of 16% for the next five years.
This week, the release of the income and expenditure survey for 2010-2011, compiled by Statistics South Africa, has informed the new weighting of the consumer price index to reflect more emphasis on household expenditure and even doubled the weighting for electricity to 4%.
The survey found that the largest contributor to household expenditure was the "housing, water, electricity, gas and other fuels" category, which accounted for 32% of household consumption expenditure. The largest proportion was imputed rentals for owner-occupiers (at 20.5 percentage points) followed by electricity (2.3 percentage points).
"The weights determine the effect that price changes in specific products have on the overall rate of inflation. The weights are based on the proportions of total household expenditure, which are mainly derived from the income and expenditure survey," Statistics South Africa said.
"It's about time. We've known for some time the weighting wasn't accurate," said Mike Schussler of Economists.co.za, who believes the weighting should be even higher.
He said the expense could be worse considering South African households benefited from free basic allocations of electricity and water, which amounted to more than R400 a month but was not accounted for in reported income.
The Bureau of Market Research's report also found that for affluent South Africans most expenditure went to income tax, at more than 25%, and the poorest households spent almost 50% of income on food.
The Labour Research Service's inflation monitor showed that poor citizens were exposed to a higher inflation rate than others. Those with monthly expenditure of R1939 a month had an inflation rate of 6.4% – well above headline inflation of 5.5% – and those in the middle and high expenditure group (with expenses of between R1940 and R6596 a month) had an inflation rate of 6.2% and 6.1% respectively. South Africans with very high expenditure – R6 596 or more – had a far lower inflation rate of 5.2%.
Not a rare phenomenon
The pressure is on poor households and many are spending 21% more than what they are earning, according to the Bureau of Market Research. "That is not a rare phenomenon in South Africa," said Professor Carel van Aardt, director of the bureau's household wealth division. "If compared to countries internationally, then it is [rare]."
What was also found was that many of these households had assets such as televisions or refrigerators.
"Although South Africans are income poor, they are asset rich … If you look at assets we are one of the richest countries in the world," said Schussler.
"A lot of it is not commensurate with what they earn … you wonder how they can afford it," Van Aardt said about the research pertaining to poor households. The answer, he said, is that many households were taking on credit.
"It's clear these households are under debt stress and they are increasingly struggling to service their debt … [and] there's a very big chance people are borrowing to eat," Van Aardt said. "The total picture is that the financial savvy of South Africans is very low. People are not budgeting or living within their means."
Data from the Finmark Trust shows that the three main reasons South Africans borrowed in 2011 was to buy food (26%), for personal use (20%) and for transport (16%). This contrasts with the National Credit Regulator's research, which showed that 27% of loans extended by credit providers was for debt consolidation and 23% for household renovations.
There are 13-million people working but 19.6-million people with credit in South Africa, which suggests that some welfare cheques may be going to credit. It may also be attributable to informal work that may provide irregular income, Schussler said.
"We are already seeing consumers sliding further into debt because of steady electricity, food, transport and other price increases," said Consumer Fair chairperson Thami Bolani. "The rising prices of basic goods and services are leading to social problems that could threaten the stability of society."
The service delivery protest baro-meter, published by the Multi-level Government Initiative, showed the South African public is in no mood for further strain.
It found that in the first eight months of 2012 there had been more protests than in any other year, with an average of almost 30 protests each month.
"If current trends hold, 2012 will have more than twice as many protests as 2011 and more protests than 2010 and 2011 combined," the barometer said.