News in South Africa 4th July:
1. Basic food prices up 15%:
The latest Household Affordability Index from the Pietermaritzburg Economic Justice & Dignity Group shows that the price of a basic household food basket is up by 13.6% year-on-year in June.
This basket now costs R4 688 and is a R560 increase from a year ago.
While many of the 44 food items tracked in the basket will not be in the trolleys of everyone, this is the lived experience of the majority of South Africans. Some items, such as basic staples (rice, cooking oil, etc) and veggies, will be found in the pantries and cupboards of readers of this website.
In fact, food price inflation experienced by those in upper income households is almost certainly even higher than 14%.
Anecdotal evidence suggests that prices of prepared produce and meat are, on average, easily more than 20% higher than a year ago.
The largest spike is seen in the dramatic increase in the price of cooking oil, largely as a result of Russia’s invasion of Ukraine.
According to PMBEJD, cooking oil now costs 69% more than last June.
Its basket shows a further 14 items where prices are up by more than 15% from a year ago. This includes a number of vegetables (onions, green peppers, butternut, cabbage and spinach), meat products (chicken, beef and processed meats) as well as grains. Frozen chicken portions – one of the primary proteins for millions of South Africans – is not on
this list, but prices are up by 14% from June 2021.
|Food||June 2021||June 2022||Change|
|Cooking oil (5l)||R135.74||R228.94||69%|
|Spinach (8 bunches)||R82.33||R114.59||39%|
|Cake flour (10kg)||R93.69||R115.90||24%|
|Chicken livers (2kg)||R55.23||R68.29||24%|
|Cabbage (2 heads)||R32.28||R39.43||22%|
|Beef liver (2kg)||R83.83||R98.50||18%|
|Green pepper (2kg)||R43.42||R49.71||15%|
|Brown bread (25 loaves)||R299.85||R345.77||15%|
There are only four foods in the PMBEJD’s basket where prices have not increased year on year: carrots, oranges, peanut butter, and rice (for the last of these, prices are actually down 4% year-on-year). Prices of a further 14 items are up in single digits versus last year.
2. Petrol and power problems:
As South African households prepare for weeks of load shedding ahead, they should also brace for a few more economic punches heading their way.
According to economists at the Bureau for Economic Research (BER), South African households will be hit by higher petrol prices this week, compounding the financial woes brought by municipal electricity tariff hikes that took effect from 1 July.
South Africans can also expect a weaker rand due to the subdued economy, thanks largely to the ongoing load shedding. This will invariably feed into the wider economy, having a knock-on effect on the cost of living and various price points in general.
The most obvious blow to households this week is load shedding.
State power utility Eskom announced load shedding at various stages this week, starting with stage 4 load shedding during the day on Monday, escalating to stage 6 during the evening peak, before falling back to stage 4 overnight.
This rollercoaster schedule will be in effect for most of the week, with the power utility expressing some hope that the situation will stabilise to around stage 2 load shedding by the weekend.
The Department of Mineral Resources and Energy is yet to publish the latest fuel price adjustments for July, which is expected to take effect on Wednesday (6 July).
Month-end data from the Central Energy Fund pointed to a R1.60-R1.80 per litre hike for petrol and a R1.55 per litre hike for diesel on the cards for the month. However, with the halving of the government’s R1.50 general fuel levy intervention for July, another 75 cents per litre is expected to be added back to the price on top of this.
This could see petrol prices being hiked by as much as R2.35-R2.55 per litre, and diesel by R2.30 per litre.
Civil action groups have been pushing for the government to extend its interventions further, but there has been no word from the department in this regard.
Beyond high fuel prices, households will also feel the effect of the municipal electricity tariff increase that came into effect on Friday, the BER said.
Major metropoles – including CapeTown, Johannesburg, and Durban – introduced their municipal electricity tariffs on Friday (1 July) after energy regulator Nersa approved a 7.47% increase earlier this year.
This figure constitutes a 3.49% increase for the 2022/23 year, and this is separate from the 9.6% annual increase for Eskom customers that kicked in on 1 April.
Even before this and the recent intense bout of load shedding, the Q2 FNB/BER Consumer Confidence Index (CCI) already foreshadowed a marked slowdown in consumer spending in coming months, the BER said.
This is reverberating across the economy, with some economists even suggesting that South Africa may be looking at a recession.
On the economic activity front, the June Absa PMI suggests that after a stellar performance in Q1, the manufacturing sector is set to be a drag on Q2 GDP.
“The rand lost about 4% w-o-w against the US dollar, closing weaker than R16/$ on four consecutive days last week. Local woes are not fully to blame for the weakness as the greenback saw broad-based strength last week, although the rand did underperform compared to its peers. The dampened sentiment towards South Africa was also seen in a sell-off in local bonds.”
3. Sassa grant deadline:
Beneficiaries of the R350 social relief of distress (SRD) grant have until July 7 to update their information if they want to be paid for April and May.
The SA Social Security Agency (Sassa) issued a reminder over the weekend, urging beneficiaries to update their personal information which was initially incorrectly provided on the SRD website and/or alter their responses to the screening questions asked in their applications.
“Clients who wish to update their screening questions for the assessment of the April and May periods should update their details by no later than July 7,” said Sassa.
When will other social grants be paid this month?
According to Sassa, social grant payments for July will start on Monday for older persons, followed by disability grants on Tuesday, with all other grants paid from Wednesday.
Can I collect my grant before the mentioned dates?
Sassa urged beneficiaries to only make their way to mobile pay points on specific dates to avoid disappointment.
“Beneficiaries who receive their social grants at Sassa mobile pay points are advised they can access their grants through the above-mentioned payment infrastructures on the allocated days for the specific grants, or any time thereafter, and do not have to wait for the cash payment dates.
4. Investing still viable:
Falling markets, screaming headlines and plummeting investment values. It’s another market crisis set to unsettle uninformed investors.
Investment managers speaking at the recent Investment Forum say navigating the markets ahead will be tricky, but there are opportunities they believe will reward investors who, despite their fears, stay invested over the long term.
The Investment Forum, organised by the Collaborative Exchange, is held annually in Cape Town and Johannesburg.
Uncertain times = volatility
The global economy has changed dramatically over the past four months with the Russian invasion of the Ukraine, the high oil price, the US economy overheating and China’s zero-Covid-19 strategy slowing that country’s economic growth, Kevin Lings, chief economist at Stanlib told the Investment Forum.
Lings said the US, facing inflation of 8%, needs to use interest rates to slow down its economy, employment and housing market. But it is difficult to manage because the effects of an interest rate hike lag the increase.
If the Federal Reserve gets it wrong, the US economy will go into a recession, Lings says.
And financial markets – which typically price in future events – are not priced for a recession in the US, Lings says. The US makes up 60% of global stock markets.
The uncertainty about how events in the US and elsewhere may unfold has heightened volatility, Lings says. Don’t expect markets to stabilise soon as investors, including asset managers, try to work out how the rate tightening will unfold.
A crisis with opportunity
Coronation chief investment officer, Karl Leinberger, described the current situation as a “real crisis”, but urged investors to consider four other crises over the past 25 years.
In 1998, there has been the emerging markets crisis, in the early 2000s the collapse of the tech stocks compounded by 9/11, in 2008 the great financial crisis and in 2020 the Covid pandemic crisis, Leinberger said.
In all these crises there were dramatic painful declines in markets that left us “afraid and grumpy”, he says.
The more prices fall, the more afraid we are and the less we want to own shares and other investments on financial markets, he says.
Our brains are hardwired for survival now and not for thinking long term. As a result, few people stay invested in the market or take the opportunity to buy more when assets are priced cheaply. But by doing so, they miss the opportunity when the market turns, Leinberger says.
As you wait for the next market turn, you should invest with an active manager who can identify where there is a dislocation between market prices and what investments are really worth, Leinberger says.
In these times, the market pricing is not efficient and you need investments and asset allocation to be actively managed, he says.
The past decade was peaceful and prosperous but we do not know if the decades to come will be the same, especially as increasingly “brittle societies and economies” face rising political tension, rising interest rates, social upheaval from climate change, social inequality and rising economic populism, Leinberger says.
But investors can profit from real world crises by taking the long view and taking advantage of mispriced assets, he says.
That long-term view, should, however, be underpinned by deep research and the price you pay to invest should always come before timing, he concludes.
5. German industry collapse:
Entire industries in Germany could collapse due to natural-gas supply cuts from Russia, said Yasmin Fahimi, the country’s top union official.
“Entire branches of industry are in danger of collapsing permanently because of the gas bottlenecks: aluminium, glass, the chemical industry,” Fahimi, the head of the German Federation of Trade Unions, told Bild am Sonntag. “Such a collapse would have massive consequences for the entire economy and jobs in Germany.”
The chemical industry, which employs about 346,000 people, is the third-largest industry in Germany, according to Germany Trade & Invest, the country’s investment promotion agency.
Germany — Europe’s largest economy — is reliant on piped natural gas from Russia, which accounts for 35% of its imports of the fuel. The industrial powerhouse imports almost all of the natural gas it uses, which accounts for about a quarter of the country’s total energy mix, according to the economy ministry.
The country’s energy crisis is already driving inflation to record highs, which threatens social stability, Fahimi told Bild am Sonntag.
Germany — Europe’s largest economy — moved into the second stage of its three-stage emergency gas plan last month after Russia slowed supplies to the country. If the situation worsens, the country may start rationing natural gas in the last of the three-stage plan, as outlined by Germany’s economy ministry.