Debt mountain: Rising food, power and fuel prices drive inflation

Increased expenditure on electricity, food and petrol coupled with an erosion of take home pay has led to worsening debt levels and families borrowing to cover costs.

In the past seven years, average net incomes (take-home pay) increased by 1% while inflation went up by 40%, says DebtBusters.

On average, consumers had 32% more unsecured debt in 2023 compared with 2016, and those taking home monthly salaries of R35,000 or more have unsecured debt levels 42% higher than in 2016.

“Last year was among the most financially difficult South African consumers have endured since democracy, with high inflation and interest rates and a straitened economy combining to erode disposable incomes,” said DebtBusters.

Rising food, electricity and fuel prices drove inflation, with the Reserve Bank countering by increasing and sustaining interest rates which are 475 basis points higher than in 2020.

Crippling levels of load-shedding constrained meaningful economic growth and consequently salary increases.

Debt counselling enquiries in the fourth quarter of last year increased by 46% and demand for online debt management was up 54% compared with the same period the previous year. Full-year debt counselling enquiries grew by 39% compared to 2022, pointing to an acceleration in the final quarter of 2023.

The release of the data coincided with National Debt Awareness Month in February.

“Virtually everyone, or 95% of those who applied for debt counselling during the quarter, had a personal loan and 24% a short-term loan. This indicates consumers are supplementing their income with short-term loans and personal loans have become a lifeline for many,” the company said.

Average interest rates for unsecured debt are at an eight-year high of 25.6%.

Compared to 2016, when DebtBusters started collecting and analysing the data, consumers who applied for debt counselling in Q4 2023 had:

• 39% less purchasing power;
• a higher debt-service burden — on average, before entering debt counselling, consumers spend 62% of their take home pay to service debt; and
• unsustainably high levels of unsecured debt — on average, 32% higher than in 2016.

TimesLIVE