Pressure on consumers builds in Q3

Consumer credit health deteriorated further in the third quarter, albeit at a Xmxxoxrxexmx.o–dxexrxactreepdaitce, amid high inflation and interest rates, data from the latest Transunion SA consumer credit index (CCI) showed.

The CCI fell by one point in the third quarter to 48 from 49 in the second quarter, according to a reading released on Tuesday. The index measures the health of consumer credit, with 50 being the midway point between improvement and deterioration.

Levels of distressed borrowing rose 5% year on year in the third quarter, accelerating from 4.1% in the first quarter, suggesting that consumers are using shortterm credit to absorb the effect of higher prices, which may also constrain spending in the months ahead.

Meanwhile, household cwash:2fl2ow.841mm remains constrained by inflation, falling by 2.8% year on year in the third quarter after a 0.8% fall in the second quarter. This is among the worst performances on record, highlighting the challenges of a weak overall labour market and accelerating inflation.

According to the report, there are additional reasons to remain cautious in the coming months. “It appears to be a challenging trading environment for many, notwithstanding the gradual improvement in current conditions as 2020/2021’s [Covid-19] restrictions fade.”

“Employment conditions remain difficult, interest rates are rising, and overall levels of business investment are weak‚” the report read.

Further interest rate hikes between now and the end of 2023 will raise household debt service costs as a percentage of disposable income and limit consumer credit health in the coming months.

tsobol@businesslive.co.za (mailto://tsobol@businesslive.co.za)