Planning your 2020 finances? Price hikes on essential expenses, changes to the interest rates, and the general state of the economy all affect your financial future. We asked Wandile Sihlobo, chief economist of the Agricultural Business Chamber of SA, and Harri Kemp, economist at the Bureau for Economic Research, for their expert views on what we can expect in 2020.

General view of the South African economy

Expect the tough economic times to continue. Sadly, South African economic growth isn’t expected to improve, nor is employment. So, it’s going to be a year where we’ll all need to stretch and save our Rands wherever we can.

There’s a positive side to this. Because consumers are struggling, most companies and organisations will try not to increase prices too much – they know we just can’t afford it.

Interest rates

What to expect
Interest rates are expected to remain roughly the same in 2020, although we could see small interest rate reductions of 0.25% – a quarter of a percent.

What it means for your budget
A change in the interest rate will affect any debt that has a variable interest rate, which is when the interest you pay changes with the official interest rate. This might include a home loan, vehicle finance, personal loan and store and credit cards.

Interest rate reductions of 0.25% mean lower interest charges, although not by much. So don’t bank on significantly lower instalment amounts. And remember to check for annual increases in admin or service charges that might affect instalment amounts.

Inflation

What to expect
Similar price increases to 2019. Official inflation in South Africa is expected to be just below 5% in 2020. We took a closer look at what’s expected for food and electricity inflation, as they are two big costs for many families.

Food inflation should be around 4.9% for the year, says Wandile. But keep an eye on the weather. Continued drought, or flooding, could lead to higher than expected prices for crops such as maize. This would increase prices for beef and chicken as well because feed costs more.Food inflation is difficult to accurately predict because the numbers can change quite quickly. Over the last ten years food prices increased on average 6.23% a year

Electricity prices went up around 14% last year. Harri says we should expect electricity prices to increase by more than the 5% inflation rate this year. The Reserve Bank has pencilled in an increase of over 10% for the year.

What it means for your budget
Budget a little more for general expenses such as clothes, household products and food than you did in 2019. So, if your food bill was R2 000 a month, increase it by 5%, or R100, in 2020. Up the number for electricity, perhaps by as much as last year’s 14%, from 1 April when increases should become effective.

Petrol and transport

What to expect
Higher prices.

The petrol price depends on the oil price. Oil is bought in US Dollars, so the Rand/US Dollar exchange rate also influences the price. Harri is expecting a slightly higher oil price in 2020, and a slightly weaker rand. Both of these prices change daily, so they are difficult to forecast accurately.

What it means for your budget
Be prepared for the fact that you’ll need more money for petrol and for transport such as taxi and bus fares, although it’s hard to predict exactly how much more. Don’t forget to include an additional increase from 1 April when the government usually increases the fuel levy.

Important to note
Things like food prices and the petrol price are quite difficult to predict – we don’t know what is going to happen in the next 12 months. So these are best estimates using the information we have now. If the economy improves or a major global event happens the actual price increases may be different.

Keep an eye on the economy – and your finances

Remember these are the experts’ best predictions, but they cannot forecast unexpected events that could change the actual numbers. For example, the rand could weaken more than expected, which would increase petrol and transport costs. Factors in the global economy could also affect prices here in SA.

All you can do is keep an eye on the economy, and on your own finances, and try and be really smart about how you spend and save your money. You can manage your own money well, no matter how the economy is doing, and set an example for your children.

What you can expect from the economy in 2020