Consumer confidence languishes on rising interest rates, high cost of living

RISING interest rates and sharp increases in food and transport costs could continue depressing the overall consumer confidence in South Africa after slashing the morale of debtladen affluent households if inflation remains elevated.

The FNB/BER Consumer Confidence Index (BCI) released yesterday remained deeply in contractionary territory in spite of clawing back 5 index points to -20 points in the third quarter, after plunging from -13 points to -25 points during the second quarter.

FNB yesterday said that consumer sentiment remained extremely depressed and signalled a substantial deceleration in real consumer spending growth relative to the robust rates recorded at the start of the year.

Confidence levels of high-income households (earning more than R20 000 a month) and middleincome households (earning between R2 500 and R20 000 a month) only improved slightly following large declines during the second quarter, from -30 to -27 points and from -23 to -19 points, respectively.

However, low-income confidence – those earning less than R2 500 a month – rebounded strongly, from -16 index points to -3 index points, the highest reading since the first quarter of 2021.

FNB chief economist Mamello Matikinca-Ngwenya said even though sentiment recovered slightly during the third quarter, consumer confidence in general remained very low and not conducive to healthy growth in real consumer spending.

Matikinca-Ngwenya said the fact that high- and middle-income confidence levels remained extraordinarily depressed was especially alarming, as these affluent groups have far greater spending power than low-income households.

However, she pointed out that social security had somewhat protected low-income households while creditworthy affluent households were dealt a blow by rising rates.

“The expansion of the R350 Social Relief of Distress Grant announced in August brought great relief to less affluent households, supporting their confidence levels in the face of significant budgetary pressure,” she said.

“In contrast, the 75-basis point hike in the prime interest rate in July weighed on the disposable income and confidence levels of indebted middleand high-income consumers.”

The revival of the services sector following the scrapping of all remaining Covid-19 regulations and the last remaining savings accumulated by affluent consumers are expected to buffer household expenditure to some extent.

Mounting inflationary and interest rate pressures, coupled with dismal consumer confidence, point to a significant deterioration in especially durable goods spending by consumers.

However, Investec chief economist Annabel Bishop said readings indicated some mild improvement in household consumption expenditure (HCE), which could help economic growth as HCE accounts for two-thirds of gross domestic product (GDP).

“While the third quarter’s consumer confidence outcome is indicative of some expected recovery in GDP, consumer confidence levels have by no means entered positive territory, and so do not herald likely strong growth in the third quarter for GDP,” she said.