We're all 20% poorer

2008-06-27 00:00

THE average middle income household in Pietermaritzburg is estimated to have become at least 20% poorer in the space of only one year, on the back of soaring five-year high consumer inflation and rising interest rates.

With a petrol price hike of more than 75 cents a litre now a certainty next week, many families have no doubt reached boiling point.

According to local economist Clive Coetzee, even a two-income household with an “after-deductions take-home” pay packet of about R20 000 a month has been rocked by the sharp rise in the cost of living over the past 12 months.

Unsurprisingly, one of the main culprits battering away at this household’s purchasing power is food inflation.

Startling results emerge out of an exercise undertaken to establish the extent to which such a household’s buying power has been eroded.

Assuming that on average this couple (two-income household) spent about R3 400 per month on food and beverage items in June 2007 — this group now spends about R3 961 per month on these essentials — an increase of R561.

It is also important to note that lower income groups are also particularly hard hit by the acceleration in food inflation.

The couple’s fuel bill would have risen by R458 from about R1 042 per month to R1 500 per month.

The South African Reserve Bank’s (SARB) efforts to stem the tide of inflationary pressure have hit consumers hard in the pocket. The SARB has raised interest rates six times in just one year — amounting to a cumulative three percent rise in interest rates.

These hikes would have lifted the couple’s (20-year) home-loan monthly repayment by about R328 from about R2 662 per month to R2 986 per month on a very modest loan of R200 000 — for a house purchased prior to the residential property boom.

In addition, Coetzee estimates that this household now forks out an extra R700 on the car repayment (on a R120 000 loan).

This repayment is estimated to have risen from about R2 727 per month to R3 428 per month.

Coetzee said the total value of the four abovementioned major household bills would have jumped from about R9 831 per month to R11 875 per month in only one year.

“We have excluded many other payments, focusing on the major ones. These are very conservative estimates,” noted Coetzee.

He stressed that the country’s middle class, a key driver of the consumer spending category that is so vital to the South African economy, has been particularly hard hit over the past year.

Monthly retail trade sales figures have confirmed that the consumer side of the economy has been placed under immense strain over the past year.

Apart from the extra R2 000 per month that a local household has to fork out, it is also worth noting that Pietermaritzburg continues to experience above average (national and metro) inflation, a phenomenon that has persisted for over two years.

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