By Anita Dangazele
- Consumer confidence had improved from -19 to -13, driven mainly by lower-income households benefiting from slower food price rises.
- This week’s interest rate hike was driven by rising fuel prices, and economists were surprised the decision was unanimous rather than a close call.
Three numbers we’ve covered separately this month actually tell one connected story, and this week’s interest rate decision sits right in the middle of it.
Earlier this month, we reported that consumer confidence had improved, from -19 to -13, and that the improvement was coming mainly from lower-income households, who’d been feeling a bit of relief as food prices rose more slowly than before. Around the same time, retail sales for July came in stronger than expected too, growing 3.4% compared to a year earlier.
On Wednesday, the Reserve Bank raised interest rates, pushing the repo rate from 7% to 7.25% and the prime lending rate to 10.75%. What surprised economists wasn’t the hike itself, most had expected it, but that the decision was unanimous. PSG senior economist Johann Els said he’d expected a closer call.
“I expected the decision to be close, with a strong case for a rate hike. However, the fact that it was unanimous was more hawkish than I expected,” he said.
The reason given wasn’t food prices at all, it was fuel. Governor Lesetja Kganyago pointed to rising oil prices linked to the ongoing war involving Iran as the main driver, and said South Africa is currently under-recovering an average of R2.83 a litre on fuel, meaning further pump price increases are likely in the first week of October.
For anyone with debt, the cost is already clear. On an average R2 million home loan over 20 years, this week’s hike adds about R337 to the monthly repayment, taking it to roughly R20,305. Car finance, credit cards, personal loans and overdrafts all become more expensive in the same way.
Here’s why that matters for the improvement we’d just started seeing. Higher interest rates mostly affect households with debt, often wealthier households whose confidence has remained deeply negative throughout this year. But rising fuel prices don’t stay contained to petrol stations. They push up the cost of transporting food and goods around the country, which can eventually show up in grocery prices too, the exact area where lower-income households had just started to catch a break.
Kganyago did offer one note of caution against reading too much into any single number: he said food prices have actually stayed relatively contained so far, and the rand has held up well despite the global turmoil.
Still, the same conflict overseas that’s been quietly easing pressure on some households through calmer food prices is now the reason borrowing is more expensive for everyone, and it could still push food prices back up again if it drags on.
Pictured above: This week’s interest rate hike was driven by rising fuel prices, and economists were surprised the decision was unanimous rather than a close call.
Image source: ChatGPT
