The FNB/BER Consumer Confidence Index (CCI) clawed back 5 index points to reach -20 in the third quarter of 2022, having plunged from -13 to -25 during the second quarter.
Apart from the Covid/lockdown period during the second quarter of 2020, the second quarter reading of -25 was the lowest recorded in 36 years.
At -20 index points in the third quarter, consumer sentiment remains extremely depressed and signals a substantial deceleration in real consumer spending growth relative to the robust rates recorded at the start of the year, said FNB chief economist Mamello Matikinca-Ngwenya.
All three sub-indices of the CCI recovered some lost ground during the third quarter, the financial services firm said.
The economic outlook sub-index of the CCI saw the greatest improvement (from -39 to -31), but this came from an extraordinarily weak level.
The household financial prospects sub-index edged up from -5 to -2, while the index measuring the appropriateness of the present time to buy durable goods (e.g. vehicles, furniture, household appliances and electronic goods) rebounded from -32 back to -28, said Matikinca-Ngwenya.
A more detailed breakdown of the CCI shows that the confidence levels of high-income households (earning more than R20,000 per month) and middle-income households (earning between R2,500 and R20,000 p.m.) only improved slightly following large declines during the second quarter.
However, low-income confidence (earning less than R2,500 p.m.) rebounded strongly, from -16 to -3 index points – the highest reading since the first quarter of 2021.
“The confidence levels of less affluent households recovered smartly during the third quarter of 2022, despite further sharp increases in food and transport costs,” said Matikinca-Ngwenya. Even though August saw fuel prices retreating somewhat from record highs, taxi fares remain very steep.
Coupled with food inflation soaring to 10.1% year-on-year in July, one may have expected low-income households – who typically spend the bulk of their budget on food and transport – to become distraught about their household finances.
However, Matikinca-Ngwenya pointed out that “The expansion of the R350 p.m. 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.
“In contrast, the 75-basis point hike in the prime interest rate in July weighed on the disposable income and confidence levels of indebted middle- and high-income consumers.”
Changes to the income threshold required to qualify for the SRD grant led to a massive drop in beneficiary numbers, from more than 10 million to around 5 million, in the second quarter.
Coupled with the altogether non-payment of SRD grants during April and May, this left a gaping hole in the budgets of most low-income households, which was reflected in the sharp fall in low-income confidence during the second quarter.
However, Sassa has since resumed its SRD grant payments and amended the maximum income threshold to R624 per month, thereby boosting the number of people who qualify for the SRD grant to an estimated 12 million.
Apart from this increase in SRD grant beneficiaries during the third quarter, a noticeable improvement in employment – especially in the services sector – in all likelihood also bolstered the confidence levels of less affluent consumers.
FNB said that despite a slight recovery in consumer sentiment during the third quarter, consumer confidence, in general, remains very low and not conducive to healthy growth in real consumer spending.
“The fact that high- and middle-income confidence levels remained extraordinarily depressed is especially alarming, as these affluent groups have far greater spending power than low-income households – where confidence levels rebounded impressively,” the financial services firm said.
Mounting inflationary and interest rate pressures, coupled with dismal consumer confidence, point to a significant deterioration in especially durable goods spending by consumers.
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