Interest rate hikes will lead to further financial hardship: Cosatu

Congress of South African Trade Unions (Cosatu) president, Zingiswa Losi says workers are justified to demand a double-digit salary increase amid the high cost of living, including interest rate hikes.

Losi has been addressing Cosatu members at Durban’s Curries Fountain Stadium on Friday.

The trade union federation has been commemorating the 1973 Durban mass strike organised by black workers 50 years ago.

According to Losi, the South African Reserve Bank’s repo rate hike on Thursday will exacerbate people’s financial hardship.  “When the inflation is sitting at 7.2%, yesterday the Reserve Bank increased the interest rate to 7.5%. Literally, it means public servants have no increase, since yesterday. This literally means workers will continue to move around the debt, they will continue to be in a debt trap.”

Credit dependence 

The latest Reserve Bank’s Quarterly Bulletin shows that households reduced their dependence on credit in the 4^th quarter of last year. It shows that household debt as a percentage of disposable income declined slightly to 62.3% in the fourth quarter, from 62.8% in the third quarter.

The bank says the reduction in household debt is due to an increase in disposable income that jumped at a faster pace than debt.

South African households spend more than two-thirds of their annual income on service debt. However, there was a small improvement recorded in the 4^th quarter last year, thanks to improved disposable income during the festive season.

Slow remuneration growth 

However, households’ cost of servicing debt relative to income remains elevated, reflecting a combination of higher debt and interest rates. The good news is that direct investment in the economy increased further in the 4^th quarter of last year due to higher capital spending by private enterprises and the government. However, investments by state-owned companies decreased.

The value of South Africa’s imports increased further in the fourth quarter of 2022, while exports fell. This resulted in the trade surplus narrowing significantly from R249 billion in the 3rd quarter of 2022 to only R12.2 billion in the 4^th quarter. At the same time, nominal remuneration growth per worker slowed in the private sector and contracted at a faster pace in the public sector.

According to the Reserve Bank, this reflected the delayed implementation of the 2022 public sector wage increase. Meanwhile, the average wage settlement rate in collective bargaining agreements rose notably to 6% in 2022 from 4.4% in 2021, reflecting the acceleration in consumer price inflation in 2022.