January fuel price increase bad news for over-indebted consumers

The January fuel price increase is bad news for indebted consumers who are still struggling to make ends meet.

This was the second consecutive increase and has dampened the new year cheer for millions of South African motorists and commuters, who will need to dig even deeper to fill their tanks and cover transport costs in the months ahead.

The primary driver behind the increase is largely due to fluctuations in international oil prices and the depreciation of the Rand.

However, there is some hope on the horizon, with Bloomberg reporting that positioning in the options market suggests the Rand is poised for a rebound that may be as steep as its rapid decline in December.

This would likely make local products more competitive in the domestic and international markets, while making South African exports more attractive for foreign buyers which in turn will lead to increased sales and job creation, spurring improved profitability and economic growth.

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Over-indebted consumers carry 2024’s financial burden into 2025

However, Neil Roets, CEO of Debt Rescue, says the fuel price increase is very bad news for consumers who already carry the financial burden of 2024 into the new year.

“South Africans are buckling under the financial weight of relentless price hikes in essential services such as electricity and water, while food prices remain at distressing levels, placing nourishing meals beyond the reach of millions of households.

“Consumers will turn to credit to make ends meet in January, further entrenching the annual ‘Januworry’ trend of entering the year with more debt.”

South Africa’s latest Credit Stress Report for the third quarter of 2024 highlights a growing reliance on credit in the country, despite numerous positive economic trends, unveiling a concerning trend in consumer credit behaviour, he says.

While there has been an increase in the number of credit-active individuals of 1.4% year-on-year, with credit card and retail credit balances accounting for a significant 40% of this growth, it goes hand-in-hand with a worrying increase in total loan balances, which have reached R2.47 trillion, representing a 2% year-on-year increase.

Another great concern is that overdue balances have climbed to R194 billion, growing by R4.7 billion over the past year, with credit card and home loan balances showing the most pronounced increases.

In addition, overdue balances on home loans have surged by over 23% year-on-year, while credit cards have witnessed a nearly 9% increase.

Roets says this suggests that consumers are turning to their cards to cope with rising costs and stagnant wages.

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Over-indebted consumers struggle with slower income growth

According to the South African Reserve Bank’s (Sarb) Quarterly Bulletin for the third quarter of 2024, household finances weakened over the period, hurt by slower income growth and stagnant employment.

This is substantiated by TransUnion’s Consumer Pulse Survey for the third quarter which noted that 25% of consumers said that their household income is not keeping up with inflation.

Economists are also not hopeful for inflationary relief in the short term, with Annabel Bishop, chief economist at Investec, predicting that South Africa’s inflation rate is likely to average above 4.0% year on year, with the Monetary Policy Committee (MPC) noting a number of risks to the 2025 outlook, including the geopolitical environment.

Bishop notes that the MPC mentioned at its November meeting that the current risk outlook “requires a cautious approach”, with risks for higher global interest rates due to increased protectionism and therefore a weaker Rand, which is inflationary for South Africa.

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Over-indebted consumers will now use even more credit

“This is a glaring red flag. There is no doubt that a growing number of credit-active consumers are relying on their credit cards to cope with the rising cost of living and income that is not keeping up with this,” he says.

“The sad fact is that for most South Africans there is little other option right now. Then there are also the many millions who simply go without each month when the money runs out. This is simply not a sustainable situation and should evoke deep concern among our leaders. A solution is urgently needed.” 

Roets points out that the festive season created added financial pressure as South Africans stretch their December salaries while spending more than usual.

“The aftermath of the festive spending trend has seen South Africans leaning even more heavily on their credit and store cards in preceding years and will almost certainly be the case again this year as consumers struggle to get through January.”