The cost of living in South Africa continues to rise faster, limiting people’s ability to save, First National Bank (FNB) said this week.
The issue becomes more pronounced with last week’s announcement from Statistics SA that the annual Consumer Price Index (CPI) inflation rate has increased to 6.3%.
South Africa’s central bank’s target inflation stands between 3 and 6%, which means that inflation now falls outside this target. Water and electricity have increased by 9.4% and 7.2%, respectively, while fuel has increased by 84 cents a litre, reports said.
“These are basic necessities which impact the pocket of almost each and every consumer and will certainly make their cost of living higher,” CEO of FNB Investment Products CEO Lezanne Human said.
One of the main issues with inflation is that salaries do not always increase at the same rate, making the disposable income of the consumer lower, Human said.
“The harsh reality is that consumers may find themselves tempted to borrow for everyday expenses. This could spiral into debt and diminish their ability to save. Our research shows that 73% of South Africans who do not save indicate that the high cost of living is preventing them from saving,” Human explained.
Inflation causes the value of the consumer’s money to constantly decrease, the Johannesburg-based bank said.
This makes planning and saving for retirement or children’s education a continuously stretched target, FNB said, urging consumers to opt for a savings account, which is fee-free.
Many products on the market promise inflation beating returns, but with no capital guarantees and more importantly with associated fees that eat away at returns over time, FNB said.
“Generally the interest-bearing cash investment products offered by banks don’t always allow a customer to keep up with inflation. This is a gap that we have spotted in the market. Our Inflation Linked Deposit account is a fee-free account that guarantees capital and saves a return of CPI plus 1%,” Human concluded.
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