Middle-income consumers are spending up to 80% of their monthly salary within five days of being paid. In addition, salaried middle-income consumers with credit, spend on average, 30% of their income on unsecured credit and 35% on secured credit.
CEO of Debt Rescue Neil Roets says that their latest survey results show this to be true, with 40% of consumers saying they have too much debt to cope with, and results showing that 40% have impaired credit records.
He warns that this is akin to a national disaster given that countries around the world rely on the middle class to keep afloat – and South Africa is no exception.
He says the danger lies in the possibility – and it’s becoming more of a reality with every passing day – of the bulk of South Africa’s middle class being pushed below the poverty line.
“The reality is that South Africans are being crushed by the volley of living cost increases that just keep hitting them from all sides and can no longer cover their basic costs – and it’s the middleclass consumer that has turned to credit en masse to see them through. This is a very precarious position to be in, both for consumers and for the country at large. The repercussions of which will soon be felt as consumers head for a tighter money crunch, as a perfect storm is stirred up by increased interest rates, rising inflation and steeper fuel and electricity prices,” he cautions.
Statistics SA’s latest consumer price index shows that inflation is going through the roof – with annual consumer price inflation quickened to 6,5% in May this year from 5,9% in April and March, breaking through the upper limit of the South African Reserve Bank’s monetary policy target range.
This is the highest reading since January 2017 when the rate was 6,6%. And it’s no surprise that fuel in particular is a major contributor. In fact, the impact of fuel is so great that removing it would see the headline rate fall from 6,5% to 5,1%.
South Africa’s higher-than-expected inflation data in June points to a further interest rate hike in July, but there is still some uncertainty about how much the central bank will hike by. The South African Reserve Bank is now forecast to follow up the 50bps hike in May with another 50bps rise in July, or even a 75bps SARB hike in July in ‘sympathy’ with the Fed and central banks in countries like Chile, Mexico and Poland that have all recently upped the ante with moves of 75bps.
The high cost of essential foods results in a lot of nutritious food being removed off family plates. More and more consumers will be purchasing these foods with their credit and store cards every month, and that is the start of a dark downward spiral. No matter how difficult it became to balance the monthly budget, using debt to service living costs is a recipe for disaster – it’s like digging a hole that you can never climb out of.