Global Courant 2023-05-13 20:00:34
South Africans are currently facing major economic headwinds, with a host of issues taking their toll.
For example, according to Stats SA, consumer price inflation has remained at a high level, from 7.0% in February to 7.1% in March.
The South African Reserve Bank has responded by raising interest rates, with the latest 50 basis point hike raising the repo rate to 7.75% and the prime lending rate to 11.25%. Many experts also believe that the SARB’s Monetary Policy Committee (MPC) will raise rates again this month.
In addition, the tax shedding has damaged the local economy and destroyed the country’s economic growth prospects for 2023, while also impacting rising inflation.
Due to the high costs faced by South Africans, we decided to compare the price of five items from 2013 to 2023 – ranging from a burger to a house – to see if South Africans are indeed paying significantly more for products.
We have decided to also include inflation-adjusted prices for a fair comparison. Below you will find the results of our test:
Big Mac
The price of a Big Mac has increased by more than 100% in South Africa in the past decade, with an increase of 45.23% when inflation is taken into account.
Despite the sharp rise in prices, the rand is still undervalued against the dollar, according to the Economist’s Big Mac Index.
The Big Mac Inxes is used to determine if currencies are priced at the “right” level, and is based on purchasing power parity (PPP) theory – exchange rates will move to the rate where they equal the price of goods and services in any two countries. The Big Mac was chosen for its wide accessibility around the world.
A Big Mac costs R49.90 in South Africa and $5.36 in the United States, with an implied exchange rate of R9.31.
However, the actual exchange rate of over R17.21 (index was published in January) indicates that the rand is undervalued by 45.9%.
Petrol
South Africans are currently paying large sums for petrol, with the current exchange rate of over R18/$ and the high price for oil – exacerbated by the Russian invasion of Ukraine – affecting prices.
Taking inflation into account, however, the price of petrol is only 4.7% higher than in 2013. This is an increase, but not as pronounced as claimed.
According to Jalpa Bhoolia and Koketso Mano of FNB Wealth and Investments, South Africans are likely to continue to face high fuel prices for the rest of the year.
They said the US Federal Reserve was likely to raise interest rates by 25 basis points (which it did), while the European Central Bank (ECB) was also expected to govern wage growth.
Rising real interest rates in these advanced economies, while South Africa’s current account sinks into deficit territory and local structural constraints intensify, should continue to weigh on the edge and exacerbate local price pressures.
However, prices should still remain below last year’s post-lockdown highs, with volatility in the market also keeping the outlook buoyant.
DStv premium
Multichoice increased the price of DStv Premium by 4.8% in 2023 – going from R839 to R879. This was slightly above the 4.3% average for its satellite pay-TV portfolio.
“(The price adjustment) is much lower than the expected CPI for 2023,” MultiChoice said in a statement.
In fact, when inflation is taken into account, the price of DStv premium has fallen by almost 15%.
Over the last decade, the media landscape has changed dramatically, with the introduction of a host of streaming technologies.
Netflix and Amazon Prime Video were introduced in 2016, Apple TV+ came in 2019 and Disney+ came to South Africa last year.
Multichoice has its own streaming service – Showmax – and recently announced a new partnership with Comcast’s NBCUniversal and Sky.
“It will build on Showmax’s success to date and aim to create the leading streaming service in Africa,” said Multichoice.
The service includes Multichoice’s investment in local content, while NBCUniversal and Sky will provide international content.
Electricity
Despite South Africans being subject to a worsening tax cut, the price of electricity has risen by almost three-quarters over the last 10 years, taking into account inflation.
At the beginning of the year, energy regulator Nersa approved an 18.65% increase in electricity prices for 2023 – which was implemented on April 1. A separate increase of 12.74% is planned for next year.
The increase is still less than the 32% increase requested by Eskom, but is still significantly above inflation.
Nersa said the decision took into account the country’s difficult economic situation, such as high interest rates, low growth, high unemployment and tax outflows.
Despite the sharp rise in electricity prices, Eskom said the winter months will put a strain on the national power grid, with thousands of megawatts offline due to outages and scheduled maintenance.
House
The property market in South Africa sees the biggest drop in prices when inflation is taken into account, with a 25% drop.
The slowdown in house prices is particularly pronounced in the current economic climate.
According to ooba Home Loan Q1 2023 oobarometer, the national average property purchase price in South Africa was R1,434,448 – an increase of just 0.8% from R1,422,992 in Q4 2022.
Barometer data indicates that homebuyers are benefiting from the competitive interest rates offered by the country’s banks. .
“While the market remains competitive and has shown a stable level of activity in the first quarter of 2023, multiple recent rate hikes have had a dampening effect on consumers whose disposable income is coming under pressure,” said Rhys Dyer, CEO of ooba Home Loans, said.
The 0.8% sideways trend is likely to affect property sellers in the near term, but Dyer said the slow growth in property prices will welcome potential homebuyers who have been waiting to enter the property market.
“Reducing house price inflation (HPI) means that properties are becoming more affordable relative to household income,” he said.
Read: South Africa is poor – even among poor countries
