/ 24 August 2022

Brace yourselves: Government’s hands are tied in alleviating pressure on households in short term

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Demonstrators march during a national strike day of action over the high cost of living, organised by the Congress of South African Trade Unions (COSATU), in Tshwane, South Africa, on Wednesday, Aug. 24, 2022. Joblessness, rising food and fuel prices and an aggressive interest-rate hiking cycle pose a threat to social stability in an economy still reeling from several Covid-19 lockdowns and deadly riots in 2021. Photographer: Waldo Swiegers/Bloomberg via Getty Images

With the national stayaway in protest against the rising cost of living, experts have warned that, due to the state of the economy, there is not much that the government has in its arsenal to alleviate cost of living pressures. 

Trade union federations Saftu and Cosatu organised a national stay away on Wednesday. 

The demands the unions made include a fuel price cap; the retabling of the Road Accident Benefit Scheme bill, which was introduced as an alternative to the Road Accident Fund; fixing the energy system; curbing price gouging by retailers; urging the private sector to abandon its investment strike and for the government to deal decisively with xenophobia. 

“We demand that the government use the upcoming Medium Term Budget Policy Statement to abandon the current draconian budget cuts and move away from the current neoliberal macroeconomic policy framework. Workers want the government to introduce strong interventionist measures in the economy in line with our perspective of a progressive developmental state,” said Cosatu in a statement

Kevin Lings, Stanlib chief economist said, realistically, there was not a lot the government could do to make a meaningful difference in alleviating the pressure on households in the short term. 

“If you look around the world, most countries are facing exactly the same pressures. It is very clear that the pressures on fuel and food are mostly externally driven,” Lings said. 

Inflation was pushed up by high food and fuel prices, which have been exacerbated by Russia’s assault on Ukraine

The oil price, which has risen to 14-year highs amid sanctions on Russia, has now fallen from its June peak of $119 dollars a barrel. Oil prices have slowed as signs of a demand-sapping global recession ripples through financial markets, the Mail & Guardian previously reported

In terms of food inflation Alexander Forbes chief economist Isaah Mhlanga said he did not see any interventions which would help to tackle food price inflation, given that much of the increase was not driven by South Africa-specific issues. 

“The expectation seems to be that food price inflation is likely to have peaked because, if you look at some of the indicators, they do point to a moderation in food prices globally. All of these things come from the war in Ukraine that has impacted grain shipments. Those shipments are now taking place but it will only show up in the months to come and the government can’t do much about it,” Mhlanga said. 

On Wednesday the Competition Commission released its Essential Food Prices Monitoring Report which found an increase in the wholesale-to-retail price of bread over time, an increase in the retail price of maize meal and a 6% increase in the price of a margarine brick from January to June.

“Sunflower oil processor prices have increased by 72% and retail prices by 36% in 2022 alone … This comes at a time when there is widespread concern over food price inflation faced by already struggling consumers,” read the commission’s statement

Lings noted that it needed to be acknowledged that the government had tried to alleviate some of the price pressure around petrol with the reduction in the general fuel levy for three months. 

“There was some relief there but the problem is that, over a few months, it costs the government approximately R2-billion a month for that sort of intervention and so it starts to become very expensive,” Lings said. 

The reduction in the general fuel levy by R1.50 for two months and by 75 cents for the final month was aimed at softening the record-high fuel hikes. Finance minister Enoch Godongwana said the revenue foregone by the reduction in the levy would be recouped through the sale of strategic crude oil reserves to raise about R6-billion.

Lings also said it would be difficult to subsidise food because, like fuel, “that becomes a very expensive exercise and, even then, it would have a limited effect on a person’s basket of consumption”.

South Africa’s statistics agency released the consumer price inflation data for July on Wednesday which showed inflation had ticked up to 7.8% year-on-year in July, as elevated petrol prices during the month took their toll.

Inflation for July accelerated to its highest level since May 2009, when the headline rate was 8%. 

July inflation was driven by higher transport costs, which increased by 25% year-on-year, and contributed 3.4 percentage points to the headline number. Food prices increased by 9.7% year-on-year and contributed 1.7 percentage points.

Up next, the Reserve Bank will hike interest rates, said Lings, to allow the government to try to curb opportunistic pricing by retailers. 

“Businesses see that there is general price pressure and they use that as an opportunity to also put up prices, hoping that it doesn’t really stand out within an environment of rising inflation.

“The Reserve Bank will try to ensure that this inflation problem does not become more than just food and fuel,” Lings said. 

Further, he added that it is going to be a very difficult time for the household sector because most household incomes are not anywhere near keeping pace with rising inflation. 

“Inflation this year will average 6.9%, I don’t think the average salary is going to do that. Incomes are going to be below inflation, with higher interest rates, and households will spend money on things that aren’t their choice, such as petrol and electricity. This is a tough environment and there’s little that households can do,” Lings explained. 

In the light of the rising cost of living, Saftu has also called on the government to set aside at least R1-trillion as an intervention package to relieve poor and working-class households.

“That is the pie in the sky!” exclaimed Mhlanga, “Who is going to fund it?” 

Mhlanga explained that Saftu’s demand was another item on a list of demands that the government cannot fulfil.

“We can’t even borrow this money because already our interest costs have been rising and continue to be one of the fastest growing expenditure items. It’s not possible to borrow without a growing economy.”

Anathi Madubela is an Adamela Trust business reporter at the M&G.