/ 5 May 2011

A gloomy year for consumers? Quite possibly

It may be a bleak year for South Africans, with the price of fuel, electricity and food expected to increase, but we can minimise the damage with some careful planning. The increases will obviously have a serious impact on household finances, forcing us to change our spending habits, but if we can avoid taking on debt we may be able to absorb some of the shock.

“It will definitely be a tighter year for consumers,” says Econometrix‘s Tony Twine.

With food inflation in South Africa expected to head towards 15% over the next year (the World Bank reported that global food inflation was at 36% from March last year to March this year), and a 26% increase in electricity planned for July, we’ll be forking out more for basics. And petrol is up 18% from last year.

This puts pressure on all sectors of society, including employers.

“If the economy doesn’t move along it will be difficult to persuade employers to take on staff, which will mean that it will be difficult to create sustainable employment. We may have to bite the bullet and accept that there will be no sustainable employment without sustainable growth in productivity,” says Twine. Government’s job-creation plans may founder as a result.

What does all this mean for the average consumer? If you have a job, you’ll probably have to up your game and increase productivity in your own right. It may be that you have to adapt to market requirements or consider relocating to meet the market’s needs; or you should ask yourself what you’re worth and consider your value to your employer. South Africans need to apply themselves in the workplace to boost the economy in sluggish times.

It’s likely we’ll all have less money to spend on food, education and healthcare, but we have to be wary when it comes to strategies to make ends meet. “We may see people dipping into their retirement savings. This is especially worrying as statistics indicate that only 6% of South Africans will have enough money to retire comfortably as it is,” says Alon Perlov, managing director of Genesis Advisory Services.

He says the fact that inflation is also rising faster than expected — up 4,1% in March compared with a year earlier — not only means that people may struggle to sustain their daily living expenses but also indicates that interest rates may have to increase to slow down the pace of inflation.

“If this happens and interest rates are increased then the average person will find that they are spending even more money just to service their basic debt such as car finance, credit cards and home loans,” he says.

Twine says that household credit growth appears to be under control at the moment, largely thanks to the National Credit Act, and banks have certainly become more cautious lenders. BoE Private Client’s Adele Arnott says there’s a misconception that bank finance has dried up, but this isn’t the case — banks have simply sharpened their lending criteria. This will ultimately protect consumers.

The sensible thing to do this year is reduce your debt, particularly that which isn’t productive. So service your bond (your car, for example, may be considered productive because you use it to get to work, or see clients, and so on) and try not to live large. It’s going to be a belt-tightening time for everyone.

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