Despite modest salary increases of just 2% to 13% over recent years, South Africans are struggling as inflation has surged by 46% since 2016, significantly diminishing their purchasing power,
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According to DebtBuster’s latest Debt Index for Q2 2024, there has been a notable rise in consumer demand for debt management services in South Africa, highlighting growing financial strain.
BusinessTech reports that while the median debt-to-annual income ratio has remained steady at 105% for four consecutive quarters, it continues to reflect a troublingly high level of financial strain.
‘We welcome this improvement but still observe that the full impact of successive interest rate increases since November 2021 continue to be felt in consumer finances,’ said Debtbusters.
‘If one considers that since 2016, electricity tariffs increased by 135%, petrol prices doubled, and inflation’s compounded impact is a 46% increase in CPI, then it is perhaps not surprising that 82% of consumers who applied for debt counselling in Q2 2024 had a personal loan.’
Another 53% of consumers took out one-month loans, showing a reliance on short-term credit.
Compared to 2016, those seeking debt counselling in Q2 had 44% less purchasing power, despite nominal incomes rising by 2% over the same period and inflation growing by 46% since 2016.
‘While the inflation impact has subsided, consumers are feeling like they are taking home 44% less today in real terms than they did in 2016,’ said Debtbusters.
Debtbusters’ data, while specific to those under debt review, reflects a national trend.
The BankservAfrica Take-Home Pay Index shows a 13.2% increase in average salaries from R13 600 in April 2016 to R15 400 in 2024, which falls short of the 46% inflation over the same period.
Had salaries matched inflation, take-home pay would be around R20 000.
Since interest rates began rising in November 2021, the cost of servicing asset-linked debt has increased, with average bond rates climbing from 8.3% in Q4 2020 to 12.3% in Q2 2024.
More worryingly, the average interest rate for unsecured debt has reached an eight-year high of 26.0% per annum.
South African consumers may soon see relief as the South African Reserve Bank (SARB) is expected to cut interest rates in September.
The repo rate, currently at a 15-year high of 8.25%, was held steady in July.
The SARB forecasts inflation will return to 4.5% by Q4 2024, and the rand has strengthened with the new Government of National Unity.
Global trends, including potential rate cuts by the US Federal Reserve, further support expectations of a local rate cut.
The Bank of America, Standard Bank, Nedbank and the Bureau for Economic Research (BER) all predict a 25 basis point reduction in September.
The BER also sees a possibility of a 50 basis point cut in September, depending on market conditions.
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