Deepening economic strain hits low-income communities across South Africa

Banele Ginidza

South African households are grappling with an increasingly severe economic strain as rising inflation in essential goods and services continues to outpace wage growth, eroding purchasing power and amplifying financial vulnerability.

This alarming trend disproportionately impacts low-income communities, as highlighted in the latest Cost of Living Report (CoL) published by the Competition Commission on Thursday.

According to Competition Commission economist Andiswa Sibhukwana, low-income households are among the hardest hit as they spend a significant portion of their earnings on necessities.

The ongoing energy crisis has exacerbated these challenges, driving electricity tariffs significantly higher, and causing additional strain on those already burdened by economic hardship.

Sibhukwana pointed out that consumers face persistent inefficiencies in price transmission within the food value chain.

"While some staples like canned pilchards have shown signs of responsible pricing at the retail level, other essential food items including eggs, IQF chicken, brown bread, sunflower oil, and white maize meal exhibit troubling patterns of price stickiness and widening retail margins," Sibhukwana said.

"In several cases, producer or input costs have fallen or stabilised, yet retail prices remain elevated, suggesting weak market responsiveness."

The report highlights alarming increases in administered prices, particularly in electricity and water bills, which have surged by 68% and 50% respectively, over the past five years—far outpacing general inflation.

This inflationary pressure is compounded by rising fuel costs, transport, and interest rates, leading to a structural uptick in the cost of living that limits access to essential services and forces families into increasingly challenging financial decisions.

Sibhukwana said water services, in particular, have faced substantial challenges due to debt impairment, inadequate investment in infrastructure, and significant losses from leaks and burst pipes, all of which contribute to increased water tariffs. Additionally, soaring electricity costs have been identified as a key driver in rising water prices, compromising public health and access to clean water.

"Another interesting key driver of inflated water prices is the cost of electricity. Electricity accounts for between 5% and 15% of the total cost of water supply and although this is relatively small, electricity price increases have been identified as a key driver of inflation in water prices," she said.

"The increase in water tariffs has raised serious concerns not only with regards to access to drinking and cooking water but also hygiene concerns. Civil society has raised concerns with the public health concerns likely to arise due to unaffordability of water."

The extensive financial burden on households is starkly illustrated by the recent Household Affordability Index, revealing that the average South African worker allocates over 57% of their monthly earnings to transport and electricity.

This limited disposable income leaves little room for food and other essential expenses. Furthermore, aggressive interest rate hikes have exacerbated this issue, significantly increasing monthly repayments on home loans and credit.

Additionally, Sibhukwana highlighted the slow adjustment of transport fares within the taxi industry, which delayed fare increases even as petrol prices rose, demonstrating a "sticky-downwards" price response that makes fare hikes permanent and resistant to later price drops.

Interestingly, while subsequent taxi fare increases have lagged behind general inflation, they are now beginning to converge with it.

"This is evident from the reduced gap between the fares and the consumer price inflation." Sibhukwana noted.

The CoL report also delves into the costs associated with internet usage and primary healthcare services, noting an increase in general practitioner costs by 33% since March 2020.

Although this rise has often remained in line with inflation, the latest increase of 6.6% raises concerns that primary healthcare inflation could outstrip general trends moving forward.

"This may be due to an increase in demand caused by an ageing population and increase in chronic illnesses. As a result, it looks likely that primary care inflation will start to outstrip general inflation moving forward," the report noted.

Finally, while rental prices for houses and flats increased by only 12% from 2020 to 2025—significantly lower than the grim overall inflation rate of 28%—the data indicates a healthy supply response to demand, with average residential rent rising to above R9 000 in the first quarter of 2025, reflecting a modest but steady change in the market.

"It is encouraging to observe that rentals for houses and flats in South Africa have increased moderately over the period and remain below overall inflation, unlike trends in many other countries," Sibhukwana said.

"The fact that supply has responded well to demand is encouraging and suggests the regulations on new developments are not dampening supply in South Africa." 

BUSINESS REPORT