Economists say that the things we buy are getting, on average, 5.9% more expensive right now. So why does it “seem” so much worse for South Africans who feel the pinch of rising food prices in their pockets?
In the second installment of Food For Mzansi’s two-part inflation explainer, a consumer activist unpacks how food price increases weigh down on low-earning consumers even more than the official numbers suggest.
Mervyn Abrahams of the Pietermaritzburg Economic Justice and Dignity Group joins agricultural economist Lunathi Hlakanyane, who explained the meaning of a recent Consumer Price Index (CPI) adjustment by Statistics South Africa and its impact on ordinary consumers in Mzansi.
ALSO READ: Inflation 101: ‘In plain English, winter is coming’
What does a CPI or inflation announcement mean for ordinary South Africans trying to put food on the table?
Stats SA takes what people buy and average it out according to levels of income. Then they work out what people spend on certain foods. This basket of food is measured at 17%, which means that, on average in South Africa, a household will spend about 17% of their household income on what they eat.
In the context of the extreme inequality in South Africa, that becomes a problem because someone who earns a national minimum wage is being undercounted while the rest are overcounted. For people who earn minimum wage, food and electricity alone will take up 57% of their wage.
Mervyn Abrahams of the Pietermaritzburg Economic Justice and Dignity Group
The less people earn, the bigger the percentage of their income they spend on food. The context of inequality throws out headline CPI inflation and undercounts the poorest.
This is not Stats SA’s fault. It is just the way CPI across the world is calculated.
It feels like South Africans’ expenses have gone up astronomically in the past year or so. How does this hunch measure against official figures?
In January, our food basket increased 8.6% year on year, which is way above the headline inflation rate. That gives an indication of why, for the lower income and the middle class, their expenditure actually exceeds the CPI.
Furthermore, we tend to use the CPI for things like wage negotiations and interest rates. The CPI is currently 5.9% and based on historical data; not going forward.
The National Minimum Wage Commission has recommended that we take headline inflation plus 1% to increase wages for 2022. But our food basket inflation is running at 8.9%, which is way above the CPI.
Looking forward to the rest of the year, we are also projecting a steady increase in petrol prices, Eskom is asking for a 20% increase, and all of this will increase inflation.
We don’t know where inflation is going to stand in August this year but we are setting wages now, based on last year’s figures.
What that means, is that real inflation outstrips wage increases. Every year, inflation eats away at the real value of the wage. Wage earners in the middle and those at the bottom are going backwards all the time.”
Do the powers that be have a handle on the numbers and can something be done?
Our inequality over the last 20 years or so has been the result of economic policy choices. Therefore, it is a political issue as well as an economical issue.
We don’t have a proper estimation of what is really going on in households and wages are not keeping trend with inflation, which is eating away at the real value of our money. We are of the view that the percentage allocated to food in the CPI should be significantly increased because people in the middle class and poor South Africans actually spend way more than 17% of their income on food. The same with 15% of their income on transport.
In actual fact, the headline inflation that is used by the Reserve Bank and employers to negotiate wages, are not painting a true picture of what is actually happening in households
Firstly, we need to get our measuring instruments to help us reflect the reality of what is happening on the ground. There is no use using data that undercounts.
Secondly, we need an economic policy that is going to focus on the lowest section of the population. This will require a major injection of funds but we need to have an economic stimulus for the poorer section of the population who create their own livelihoods.
Currently, our social grant system… is informed by a welfare concept and we need to change that into an economic concept.
What do ordinary citizens do to survive in the meantime?
I don’t hear about people dropping dead in the street, so people are finding ways to survive.
Some of these ways… are actually bad for the economy in the long term. People eat less food. The effect of low nutrition is that children going to school cannot make full use of the investment that is being given to them through our education system.
Also, our disease burden is increasing all the time. People with non-communicable diseases are putting a major strain on our health system, which is a direct consequence of long-term under nutrition and not eating enough.
Mervyn Abrahams of the Pietermaritzburg Economic Justice and Dignity Group
Thirdly, our productivity levels are low in South Africa because of the levels of education, but also the levels of energy. People don’t have the energy to work because they are going to work hungry.
Undercutting people’s ability to eat properly… the country pays for it.
ALSO READ: Interest rate hike ‘a blow for top agri season’
Sign up for Mzansi Today: Your daily take on the news and happenings from the agriculture value chain.
