Things fall apart
FAMILIES: CAN’T MAKE ENDS MEET
Decline can be attributed to rises in prices, interest rates, load shedding.
The recent increase in the cost of living has put households at high risk of becoming financially vulnerable – unable to make ends meet. This is the realisation one comes to after studying the latest quarterly Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) report.
The research found that the state of consumers’ finances deteriorated in the second quarter of 2022, with the index falling to 48.5 points at the end of June compared with 53.4 points at the end of the first quarter.
The drop to below 50 points indicates that consumer finances have dipped into a very exposed state.
The index is currently just above the very low levels of the middle of 2021, when the country had to deal with the Covid pandemic, continued lockdowns and the fallout from the initial severe lockdowns.
The CFVI fell to below 46 points at the time.
Momentum economist Johan van Tonder says this significant decline can be attributed to steep rises in the prices of fuel and food products, load shedding, increasing interest rates and low economic growth.
“All these rising costs are coupled with a limited access to tangible resources that consumers could otherwise have used to overcome their financial challenges,” he says, alluding to the perception that households have already used up their savings, while the various measures that assisted households during the pandemic are no longer available.
The latest inflation report published by Statistics SA has the figures.
The petrol price has increased by nearly 42% and diesel by 54% compared with a year ago, while the price of brown bread increased by nearly 16%, white bread by 12%, a piece of steak by 14%, and cooking oil by a massive 50%.
The sharp increase in interest rates – with banks’ prime lending rate increasing from 7% for most of 2020 to the current 9% – has led to higher instalment payments on everything from cars to homes.
Interest rates are expected to increase further, with the higher rates eventually filtering through to related costs, such as rent.
“Every one of the subcomponents of this quarter’s index has deteriorated, including income, expenditure, savings and debt servicing,” says Van Tonder.
The index indicates that people’s capacity to service debt remains the greatest constraint on consumers.
“In fact, it was found that the ability for consumers to service debt worsened to the extent they had to seek outside assistance to cope with their debt burdens,” he says.
Momentum and the Bureau of Market Research at Unisa calculate the index every quarter based on a survey of key informants – such as researchers, bankers, insurers, retailers, government, economists and analysts – who deal with consumers and/or study consumer finances on a continuous basis.
All four subcomponents of the CFVI deteriorated in the second quarter. The expenditure index declined, but remained above 50 points. The other three subcomponents – income, saving and debt servicing – indices all decreased to below 50 points.