South Africa’s disposable income further reduced by latest hikes (ETF)

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Rising cost of living, record petrol price hike and rising interest rates mean middle-class South Africans will have less disposable income in coming months, FNB says .

Commenting on his latest price changesreleased on Wednesday, the bank noted that the rising cost of living played a key role in its decision to freeze or introduce below-inflation increases to its accounts.

The bank said one of its key strategies is to focus its rewards on creating value for this segment, with most middle-class South Africans typically prioritizing their money for groceries, costs fuel and transportation, as well as telecommunications and data charges.

The bank cited data released in May that shows it takes an average-income consumer five days on average to spend up to 80% of their monthly salary. This suggests that the average middle-income consumer, earning between R180,000 and R500,000 a year, survives on 20% of their monthly salary for more than 20 days a month.

In addition, middle-income salaried consumers with secured and unsecured credit spend an average of 30% of their income on unsecured credit and 35% on secured credit, the lender said.

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This follows a similar comment from professional services firm PwC which noted that another year of interest rate hikes will affect the purchasing power of South Africa’s middle class.

As with rising inflation rates, households at different income levels will face challenges from rising interest rates amid a weakened economy, the company said.

“The expected increase in the repo rate by 100 to 125 basis points through 2022 from 2021 levels may well leave some lower to middle income households paying more for newly acquired vehicles or properties in to the extent that they would be compelled to buy”. or cancel other discretionary spending such as (supplementary) insurance and savings products. »

Debt Rescue chief executive Neil Roets has warned that the country’s record fuel prices are also set to push more of the country’s middle class into poverty.

“The rise in fuel prices will certainly aggravate the over-indebtedness in South Africa, especially since it will be a massive increase in prices. People in South Africa are already over-indebted, especially due to Covid and the lockdown where we have seen pay cuts and job losses,” he said on the radio. Jacaranda.

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“On top of that, the price increases will push the middle class in South Africa into poverty and make them more indebted.”

What it takes to be part of the middle class in South Africa right now

A new survey by consumer insights group WhyFive paints a different picture of the middle class in South Africa, with 58% of respondents saying they have no debt or are in control of their debt and don’t do not feel stressed.

The group said the indebted segment – ​​around 40% of respondents – has been consistent over the past four years, indicating a fairly stable financial situation for the middle class. The survey was based on 33,000 respondents from households earning more than R10,000 per month.

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“What we are witnessing is not a case of impoverishment of the whole country. Instead, it might be truer to say that the impact of Covid has been that some have gotten poorer, while others have gotten richer – a different dynamic. Arguably, over the past year, the South African middle class has staged one of the biggest comebacks we have ever seen,” the group said.

Other positive indicators include reported car sales showing a strong recovery, banks ending 2021 with huge increases in overall profits, and popular middle-class retailers also reporting revenue and profit growth. These indicators come out of a tense previous year due to the pandemic, but point to a recovery in the economy.

Employment data released by Stats SA this week also pointed to good news in the labor market, with the country adding 370,000 jobs, lowering the unemployment rate by 0.8 percentage points to 34.5% according to the narrow definition.


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