News in South Africa 17th March:

1. Groceries cost 50% more:

Over the past year, overarching factors such as geopolitical unrest, a weaker rand, and persistent and escalating load shedding have elevated food price inflation in South Africa – resulting in most consumers spending almost 50% more on groceries since 2019.

Groceries cost 50% more
Photo by Erik Scheel

This is according to Discovery Bank’s SpendTrend23 report in partnership with Visa, which analysed consumer spending before, during, and after the Covid-19 pandemic for Discovery Bank clients and the rest of South Africa.

The report looked at the spending data across four main client groups:

  • Mass – clients who typically earn less than R100,000 per annum;
  • Mass Affluent – clients who typically earn between R100,000 and R350,000 per annum;
  • Emerging Affluent – clients who typically earn between R350,000 and R850,000 per annum; and
  • High Net Worth – clients who typically earn more than R850,000 per annum.

Middle class South Africans are generally regarded as mass or emerging affluent.

According to the report, grocery spend as a proportion of total spend has increased for both Discovery Bank and South Africa owing to rising food prices that have outstripped general consumer price indices.

South Africans experienced food inflation of 12% in 2022, almost double the national inflation rate, which eased to 6.9% in January 2023.

As a result, the report noted increased spending across all client categories compared to 2019, but some are struggling more than others.

In South Africa, the increase in food costs is especially felt by the mass market, spending almost 50% more on groceries than they did in 2019, said Discovery.

This is followed by the affluent mass market (14%), emerging affluent (12%), and the high net worth market, seeing the smallest increase in spend on groceries, of only 4%.

While total spend on groceries and basket size is directly correlated to income, the data shows that affluent markets are still affected by food inflation.

2. ECB sticks to rate hike plan:

The European Central Bank raised interest rates by 50 basis points on Thursday as promised to curb inflation, ignoring financial market chaos and calls by investors to dial back policy tightening at least until sentiment stabilises.

The ECB has been raising rates at its fastest pace on record, but a rout in global markets since the collapse of Silicon Valley Bank (SVB) in the United States last week had threatened to upend those plans at the last moment.

In line with its often-repeated guidance, the central bank for the 20 countries that share the euro lifted its deposit rate to 3%, the highest level since late 2008, as inflation is seen overshooting its 2% target through 2025.

“Inflation is projected to remain too high for too long,” ECB President Christine Lagarde told a news conference, reading from the statement agreed by the bank’s policymakers.

“The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area,” she said, while adding that the region’s banks had strong capital and liquidity positions.

The statement offered no commitments for the future, despite previous calls by a long list of policymakers for more big moves in the fight against inflation.

3. Massive electricity price hike:

After granting Eskom a 18.65% price hike in January, the national energy regulator Nersa has now approved a 18.49% hike for municipalities.

The increase for Eskom’s standard tariff customers will be effective from 1 April 2023 and for municipalities from 1 July 2023.

Nersa said that key industrial and urban customers would realise an 18.65% increase and an additional 7.37c/kWh to cater for the subsidy, which increases from 5.69c/kWh resulting in a 29.53% increase.

Municipalities will experience a slightly lower hike at 18.49% because they will not experience an increase in the first three months (April to June) of Eskom’s financial year – their financial year starts on 1 July.

The table below shows the retail tariff adjustments for 2023-2024:

Sourced from: BusinessTech

The regulator added that tariffs exclude value-added tax (VAT) as the Minister of Finance Enoch Godognwana determines the rate.

“The Minister of Finance last proclaimed a VAT increase in 2018, from 14% to 15%,” said Nersa.

Eskom will ensure that its approved Schedule of Standard Prices for 2023/24 is published on its website and communicated to all customers, it added.

4. Energy won’t be used to boost the ANC:

Electricity Minister Kgosientsho Ramokgopa says law and order and good governance won’t be undermined just to ensure the power crisis is resolved in time for the 2024 election.

Polling shows that the governing ANC is at risk of losing its majority in the elections next year, with the ongoing power crisis exerting severe political pressure.

Ramokgopa said that the state of disaster regulations wouldn’t be abused and should only be used as a last resort if existing legislation prevents emergency procurement.

5. Big banks’ worst-case scenarios for the economy:

The risks of a ‘downside’ scenario playing out in South Africa over the coming year are rising.

Already, FirstRand sees the probability of this nearly 20% higher (or five percentage points) than a year ago. This is a material change – 33% versus 28% in December 2021 – and it now only sees the probability of its baseline scenario at 55% (from 58% a year prior).

Banks are required to produce a series of macroeconomic scenarios, which they use to determine expected credit losses when reporting financial results.

All four full-service banks see lower growth in their base scenarios for 2023, and all but Standard Bank see contractions in their bear or downside scenarios.

In FirstRand’s worst-case picture, “global inflation remains above central banks’ comfort levels, resulting in further policy tightening with negative knock-on consequences for global financial conditions and risk appetite”. Load shedding becomes even more acute, or as the banking group politely terms it: “The South African government experiences significant setbacks in its efforts to manage the energy transition and decarbonisation process.”

Additionally, “the country fails to implement growth-enhancing economic reforms”, real credit extension falls, savings increases and “Russia’s invasion of Ukraine drives headline inflation significantly higher and real disposable income growth significantly lower”. And there’s a possible resurgence of Covid-19.

Importantly, not all these events need to happen for this bear case to play out. Worsening load shedding from current levels and a ruling party almost entirely focused on next year’s elections, ought to do the trick.

Absa sees a similar shrinking of the economy in a “mild downside” scenario (at -1.1% from 0.8% growth forecast in December 2021). Nedbank has two negative scenarios: mild stress (21% probability) and high stress (8% probability). In the less bad case, the economy will shrink by 0.14%, while in the worst case it sees a decline of 1.17%. Its most bearish scenario is also less bad than what it thought a year ago.

Only Standard Bank sees positive growth (0.41%) in its bear scenario.

However, the baseline economic scenarios produced by each of the banks are already more optimistic than their actual forecasts for the year.

All information sourced from articles posted by: BusinessTech, Fin24, BusinessLive, and Moneyweb.

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