Consumer price inflation increased by 7.6% year-on-year in August 2022, down from the 7.8% year-on-year print in July 2022. Month-on-month inflation increased by 0.2%, compared to the 1.5% increase the previous month. Luigi Marinus, portfolio manager at PPS Investments, explains that inflation now averages 6.6% for the calendar year-to-date, which is well above the top end of the target band. These are the 10 things that stand out about where consumers are now financially, from PPS; as well as the latest quarterly TransUnion credit report:
- The Q2 TransUnion South Africa Consumer Pulse Study found that for the second consecutive quarter, 56% of households said that they would be able to pay their current bills and loans. This positive ratio of consumers with sufficient debt service capacity could be due to a rise in household income levels in Q2 2022, as 31% of consumers surveyed indicated an increase to their household income, a 5% increase from Q1 2022. In addition, South Africa’s unemployment rate for Q2 decreased by 60 bps to 33.9%⁵. This drop in the unemployment rate may have kept consumers somewhat optimistic regarding future income prospects, with 70% expecting their household income to increase in the next 12 months.
- As at Q2 2022, 35% of consumers surveyed stated they had paid down their debt faster over the past three months. This figure was more pronounced for younger consumers, with 39% of Gen Z and Millennials sharing these sentiments. In addition, one in three consumers intend to use money from their savings to service their bills and debt obligations, a sign that consumers are prioritising their credit obligations. This was observed at a time when credit data showed improvements in delinquency performance across most credit products.
- Transport has again been the largest contributor to inflation over the past year as it has been every month this year apart from January. Although transport has contributed 2.9% of the 7.6% increase over the year, the month-on-month contribution of transport saw a decline of 0.1% mainly due to the recent decline in the petrol price on the back of the slight moderation of the global oil price.
- Other large contributors to inflation over the year are food and non-alcoholic beverages (1.9%) and housing and utilities (1.0%). All 11 inflation groups did however see an increase in prices year-on-year, as was the case for the past few months. Food and public transport which are important inflation considerations for many South African consumers saw increases of 11.5% and 23.6% respectively over the year, in part as a result of the secondary effect of the 43.2% increase in fuel prices.
- While an inflation rate of 7.6% is higher than the South African Reserve Bank (SARB) would aim for, it is the first decline in an inflation print since January. This is unlikely to slow the rates hiking cycle the SARB is employing, but may be the first indication that the hawkish view is having the required effect on inflation. This decision is however not taken in isolation and the action of the US Federal Reserve will be a consideration in the SARB’s deliberations.
- TransUnion says in its Q2 2022 credit report that credit delinquencies have stabilised across major consumer credit products, except for credit cards due to the recent resurgent growth in new business; but despite recovering new account volumes, outstanding balances continue to lag prior year levels.
- Secured lending performance has stabilised, with signs of a slowdown in home buying activity due to the recent rates hikes.
- Consumer confidence is the second lowest it’s ever been in three decades (second only to Q2 of 2020 at the peak of the initial outbreak of the Covid pandemic). That reading signalled a corresponding marked slowdown in consumer spending in the same months, with a 2.5% year-over-year (YoY) decline in retail sales from a year earlier in June.
- Credit card growth leading the charge: New credit activity grew despite overall consumer sentiment indicating a cutback on spend. The volume of credit card originations has been steadily growing since its low in Q3 2020, indicative of increased lender appetite for growth as well as higher consumer demand for credit. From an age perspective, 74% of all card originations came from Gen Z and Millennial consumers, indicating higher demand for credit from younger consumers and a willingness by lenders to extend credit to these borrowers.
- Clothing accounts and revolving retail credit saw YoY originations growth of 29.8% and 17.8% respectively in Q1 2022. While serious account delinquency, measured as a percentage of accounts three or more months in arrears, remains high – at 30.8% for clothing accounts and 16.1% for revolving retail credit – the delinquency rate on these types of accounts has improved by 460 basis points (bps) on clothing accounts and 110 bps on retail revolving credit YoY in Q2 2022.
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