Stats SA has reported that the May consumer price index (CPI) hit 6.5%, up from 5.9% in April and 5.2% in May last year.
The May 2022 data mean inflation has breached the Reserve Bank’s target range of between 3% and 6%, signalling that interest rate hikes could be higher than previously expected.
Most economists polled by Business Times are predicting a 75 basis-points rate increase when the Bank's monetary policy committee (MPC) meets next month.
What does this mean for you, the consumer? We are afraid, nothing good.
If you have a R1.2m home loan to be repaid over 20 years, your monthly repayments — in the event of a 75 basis-points rates revision — will increase from R10,200 to R10,780; that’s R580 more out of your pocket.
If you have a R1.2m home loan to be repaid over 20 years, your monthly repayments — in the event of a 75 basis-points rates revision — will increase from R10,200 to R10,780; that’s R580 more out of your pocket.
Hayley Parry, money coach and facilitator at insurer 1Life, warns of a serious knock-on effect as consumers often have more than one loan. “All of the small increases on these multiple loans add up quickly; suddenly your monthly cash flow has taken a knock between the increasing debt repayments and the increased cost of living.”
As much as we are not in favour of interest rates hikes, we have to agree with the central bank’s mandate of keeping inflation in the 3%-6% band because a rise in food and other essential items hurts the poor most.
An increase in the lending rate puts less money in consumers’ pockets, which has a correlating effect on spending and moderates rises in the cost of basic items.
The Pietermaritzburg Economic Justice & Dignity Group’s household affordability index highlights sobering year-on-year price increases for some common items: R201.90 for a 5-litre bottle of cooking oil in May compared with R132.86 last year; R381.66 for a 10kg bag of frozen chicken pieces from R328.28; and R77.43 for a 10kg bag of potatoes vs R63.59.
Runway inflation has already resulted in economic riots in Sri Lanka and Ecuador, so governments are correct to be concerned. Hang tight, this will be one rough ride.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.