News Column

Shrinking buying power hits home

June 10, 2014

Joseph Booysen


WITH low economic growth putting food supply chains under pressure, consumers are battling and many are unable to cope with price hikes, experts say.

Herman Marais, the managing director at Agri-Vie, a food and agribusiness private equity investment fund, said the prices of essential goods and services were escalating at a higher rate than consumers' earnings. This meant spending power was decreasing.

Marais said most South African consumers were struggling to make ends meet and retailers were feeling the impact.

"The average grocery trolley in the supermarket cost just over R400 in December, which was up by only 1.6 percent from the previous period. This indicates consumers are cutting back as this increase is more than 4 percentage points below the inflation rate."

Consumer activist Ina Wilken said consumers were finding it difficult to afford basic necessities.

Since 2008, electricity tariffs had increased by 78 percent. Other increases, including above-inflation municipal rate hikes and fuel price hikes, made it impossible to keep up.

"Adding to this are medical schemes' annual increases and lower payouts, forcing consumers to cancel their medical schemes or go on to cheaper options… (It is) an additional burden on public hospitals, which cannot deliver.

"Our farmers are not taken care of. They are the people who are responsible for food security and yet they don't get help from the government. We have lost many farmers and are forced to import meat and many other food products, which inevitably leads to higher prices."

Clif Johnston, the vice-chairman of the South African National Consumer Union, said: "Energy costs have been cited as a major contributor."

Transport costs had to be added. Not only had fuel prices increased dramatically, but industry and consumers in Gauteng had been hit by the introduction of e-tolling, which had affected regional transport costs far more than the combined fuel price increases over several years.

"In the affected classes, consumers balance their budgets by paying off their commitments first and then using the remainder for consumables. This explains why the overall takings of supermarkets have risen so little, in spite of price increases. Consumers are simply unable to spend more."

A survey by online credit provider Wonga.comSouth Africa of almost 20 000 customers found more consumers were taking out personal loans to cover the shortfall in their finances.

Kevin Hurwitz, the chief executive of Wonga.comSouth Africa, said that contrary to the perception that consumers took loans to live beyond their means or to make extravagant purchases, most of the company's customers used credit to pay for basic items or unexpected expenses.

Cape Argus

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Cape Argus (South Africa)

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters