Consumers are increasingly using credit and store cards to maintain their living standards despite interest rates being the highest since 2008, according to the latest SA Consumer Credit Index (CCI) from credit bureau TransUnion.
The index fell to 39 — its lowest score on record — in the second quarter, a four-point decrease from the previous quarter and 10 points lower than a year earlier.
The CCI measures the health of consumer credit, with a reading of 50 the midway point between improvement and deterioration.
According to the data, the use of credit and store cards rose 2.1% year on year. While that could prop up consumption in the short run the effects are felt down the line when the debt has to be repaid.
“It’s telling [that] distressed borrowing is rising when consumers might be dissuaded from borrowing further by higher interest rates,” the credit bureau said.
The impact of a cumulative 475 basis-point increase in the Reserve Bank's repo rate since November 2021 is also reflected in debt servicing costs, which on average rose 24% year on year.
Credit defaults have also increased since the Bank cut interest rates during the Covid-19 pandemic to get people spending, but TransUnion believes “new defaults returned to a more normal level rather than worsened abnormally”.
The tough economic conditions have weighed heavily on consumers and their disposable income and are also evident in company earnings. Many retails firms have indicated that constrained consumers are increasingly looking for specials and discounts.
Some reprieve is expected after consumer inflation in June eased to within the Reserve Bank’s target band of 3%-6% for the first time in almost two years, prompting the Bank decided to keep its key rate unchanged 8.25%.
Still, the Bank has said further rate hikes are possible depending on economic data.
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