Businesses set to pass hikes on to consumers

With costs rising month by month, business may be forced to increase their prices in the months ahead. Image: apops Fotolia

The view that prices might be passed on to consumers is supported by the weaker rand‚ which is making imports costlier. The rand depreciated to a fresh five-year low of R10.89/$ at midday on Tuesday (14 January) but regained some ground in late afternoon trade.

"The weak rand not only causes input prices for businesses to go up‚ but there is an inflationary effect as well because of the price increases‚" Efficient Group chief economist Dawie Roodt said.

A survey conducted by Sacci among 64 small and medium-size enterprises showed that they were mainly worried about the high cost of doing business‚ particularly because of rising electricity prices and municipal levies‚ and the cost of complying with regulations.

Rau said small and medium-sized enterprises are the engine for job creation in the country.

Other concerns included access to finance‚ inadequate or failing infrastructure and uncertainty over changes to the law. Higher electricity‚ labour and transportation costs have also been weighing on businesses.

"The capacity of businesses to absorb costs is diminishing rapidly and these costs will have to be passed on to consumers‚" Rau said.

Businesses absorbing price increases

A number of factors‚ including containing consumer inflation and weak household spending‚ have shown that businesses have been absorbing price increases and not passing them on to consumers.

Higher costs have, until now, been absorbed by many businesses but this can no longer continue. Image: cristovao31 Fotolia

The consumer price index‚ which measures inflation‚ moderated to 5.3% in November last year from 5.5% in October.

"Retailers and manufacturers have been absorbing high and rising costs and at some point they are likely to be forced to pass these costs on to the consumer‚ regardless of the stubbornly weak outlook on consumption demand‚" said ETM Analytics economist Jana le Roux.

Costs are taking their toll on consumers and businesses‚ according to Debt Rescue's chief executive Neil Roets. He said the past two weeks had seen nearly double the number of clients seeking help compared with the same period last year‚ mainly following the implementation of e-tolls in Gauteng.

"Some of our new clients are small business people who operate vans and trucks‚ which are tolled at much higher rates than passenger vehicles‚" he said.

Under-pressure businesses and consumers‚ contained inflation and sluggish economic growth are among factors that are expected to support the case for interest rates to remain on hold when the Reserve Bank's monetary policy committee meets later this month.

"Despite all their concerns‚ most respondents still expected an improvement in their businesses but were not "overly optimistic" about overall business conditions this year‚" Rau said. Business confidence remained very weak last year because of low economic growth and strikes.

Although it did not come up in the survey‚ Rau said businesses were also concerned about electricity supply constraints‚ but welcomed Eskom's "transparency" on the challenges. The utility expects the system to be under extreme pressure for most of this week due to higher demand as industry resumes and schools reopen.

About 25% of the 64 businesses surveyed planned to hire staff‚ while 21% said they would need to shed jobs.