As South African inflation drops below target for the second month, interest rate cuts loom on the horizon but could it ease the financial burdens faced by consumers grappling with rising living costs.
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The interest rate-cutting cycle will continue in January after inflation was below the target band for the South African Reserve Bank (Sarb) for the second month in a row. However, for most consumers, this is a small consolation amid other price pains.
In October and November, inflation was 2.8% and 2.9% respectively, which is lower than the Sarb target band of 3% to 6% and there is room to lower the interest rate further.
The Sarb monetary policy committee is expected to announce its interest rate decision on January 31, 2025.
Riaan Grobler, head of advisory services, Everest Wealth said: "It will also be a long January for most consumers, with, among other things, medical aid premiums rising sharply in 2025 and provisions that must be made for extra expenses, such as back-to-school purchases."
"Consumers have suffered from large price increases in the past few years while the interest rate has risen by 475 basis points since November 2021 and has only dropped by 50 basis points."
Another interest rate cut in January will give consumers a welcome boost after the festive season and another cut in March can help supplement consumers' disposable income, according to Grobler.
The interest rate is expected to be reduced two or three more times in 2025, potentially leading to a total decrease of at least 100 basis points or possibly 125 basis points.
Grobler said that the inflation rate of food, power, fuel as well as medical is more than double the overall inflation rate and the middle class spends a larger amount of their income on these items while salary increases are mostly below overall inflation.
"In real terms, the middle class is getting poorer and struggling to maintain their standard of living. Inflation and the high interest rate cycle cause disposable income to shrink and costs to rise. Consumers remain under pressure to rationalise and prioritise spending," Grobler said.
South Africans should know by the end of the year how much more they will pay for electricity in the new year as Eskom wants a 36% price hike for electricity in 2025 and the National Energy Regulator of South Africa (Nersa) is expected to announce its decision on December 20.
"If Eskom's application is granted, it will result in an unaffordable increase in the cost of living for most people. Eskom also now wants to punish those who have installed solar power to avoid load shedding and rising tariffs," Grobler said.
Consumers have had a tough 2024 and this is expected to continue for the foreseeable future.
Grobler said: "Consumers should therefore continue to not take on further debt unnecessarily, use credit cards recklessly, or live beyond their means and to think twice about every rand spent.”
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