Price pressures likely to hurt credit health’s recovery
RISING inflation, a rates hike cycle and higher utility costs could conspire to undermine consumers’ relatively stable credit health.
These dynamics could come into force in the third quarter of the year and could push consumers to increasingly use credit as they battle financial pressure.
Interest rates rose by 25 basis points last month, electricity tariffs went up 13% and inflation is expected to increase further after shooting to 4.7% in June.
Although consumers’ credit health was stable in the second quarter, this could change in the third quarter, TransUnion CEO Geoff Miller said yesterday.
“We are a bit pessimistic and expect to see a deterioration going forward,” Mr Miller said.
TransUnion yesterday released its consumer credit index, which showed that spending could slump in the third quarter.
The index was unchanged at 54.4 in the second quarter. A figure above 50 suggests that consumer credit health has improved, but a reading below 55 shows the advance is moderate.
There were a total of 56-million credit accounts, including store and credit cards, in the second quarter. The aggregate annual household disposable income was about R1.83-trillion, with the value of revolving credit at R132bn.
While welcome, the 51c/litre petrol price decrease this month and another one expected next month would not be enough to offset the pressures on consumers’ disposable incomes from other fronts, Mr Miller said.
Household cash flow fell to 1.6% from 2.6% as higher food prices ate up a bigger portion of incomes. Paltry salary increases and job losses compounded the situation.
The federal open market committee is due to meet next month against a backdrop of continuing emerging market currency weakness. Some of the committee’s members have expressed a favourable attitude towards raising interest rates in the US.
However, Investec chief economist Annabel Bishop said that if this won the day, the rand could experience more weakness against the dollar and the pound.
These … could push consumers to increasingly use credit as they battle under financial pressure