South Africa's Interest Rate Hikes Crushing Consumers

As countries around the world experience inflation due to their poor monetary policies, ramped up by the lockdowns, the supply chain issues from lockdowns, the capital injected to keep people locked down and of course, the oil and food shortages, prices of energy, and food are on the rise, eating into peoples disposable income.

Like many countries, South Africa has posted a record high CPI of 7.4% which is a load of horse shit when most things you use to survive are up 20-30%, but let's go with it shall we?

At 7.4% the interest rates by the reserve bank at 4.75% was not doing much to reduce consumption, so they've moved it up to 5.50% per year. This is the rate at which the banks are charged to borrow money so they'll pass that on to the consumer by raising their rates.

Interest rates on car loans, home loans, and credit cards increase, and of course savings accounts, but what's the point of saving if your savings account still gives you a return below the stated inflation never mind real inflation.

As many South Africans live paycheque, to payday loan, to credit card, to store credit to borrowing from loan darks and family, the hike in rates, hits them hard.

July’s Debt Busters review of South African sentiment on the money-stress tracker shows 70% of respondents to the survey indicated they were already feeling financial stress, with 94% believing it affected their home life, and 76% that it was so serious that it was affecting their health.

The survey consisted of 14,000 responses, with the majority worried about running out of money before month end, 36% concerned about paying off debt, and 27% worrying about rising inflation and living costs. 72% need 30% or more of their income to repay debt.

Demand destruction is the policy

Since governments and central banks don't produce anything, they cannot print money to create food and energy, that is something people with skills provide and they have a limit. there's only so much oil that can be pumped and refined and so much food that can be pulled out of the ground.

So since they are powerless to increase supply the only option is to reduce demand and that's what they are hoping to do with raising interest rates. The higher rates go, the fewer people have to spend, they need to pay debt. The higher rates go, the more businesses die, so it drives job loss, meaning people have less money to spend.

The theory goes, drive the country into a recession so you don't have to deal with inflation, but that doesn't mean you'll stop inflation, it's a hope. An inflationary recession is something that can happen, ask the people in Zimbabwe and Venezuela.

People are getting stretched to the limit, and how far the breaking point is, is anyone's guess.

A personal take

Now I am not sure if this is common in other countries, but in South Africa, the act of walking around neighbourhoods and knocking on people's doors to ask for money, food, and clothing is pretty normal. People who are out of work, treat neighbourhoods like their own shopping mall, and will window shop from home to home asking for handouts.

Not a single one would offer their time to say, wash your car, windows, or work in your garden. No the first thing they will ask is to give me stuff now.

Many are pretty adamant about it, I've often asked them how does it work, that I work for stuff and then you come and demand stuff? The entitlement is off the chain.

Naturally, these people do it because they feel this is better than going out to look for work and man has this practice increased. I used to get maybe 1 a day, now it's up to 3 - 4 people per day.

That to me is a strong indicator of people are falling further below the breadline, and while still anecdotal, I've seen a steady increase in this, in the number of people on the streets, in the number of people selling their homes and cars.

This is not an easy thing to do, people feel attached to those big-ticket items, it's part of their identity and to give it up and scale down is a massive knock to the ego, a knock people will put off as long as they can, so you know it must be bad.

Have your say

What do you good people of HIVE think?

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