Consumers may be spending less over the upcoming festive period and on popular shopping days, such as Black Friday, according to the latest edition of the Altron FinTech Household Resilience Index (AFHRI), as interest rates continue to squeeze household finances.
“Christmas may also be bleak for retailers across the board, with households now very clearly under severe strain, especially those in the lower income brackets,” Altron FinTech MD Johan Gellatly said on Thursday in the latest edition, which covered the second quarter of 2023.
The index improved 0.4 points quarter on quarter to 109, but remained level year on year. Out of the 20 indicators that make up the index, 11 were down year on year and nine declined quarter on quarter.
The first quarter of 2014 is the base period with a score of 100 for the index, meaning that the average household’s financial finances improved only 9% in real terms, which removes the effects of inflation, over more than nine years.
“Since 2014, the average annual improvement in the index is less than 1%, which serves as a clear indication of the economy’s underperformance, mainly because of low investor and business confidence resulting from state capture and the erosion of the efficiency of infrastructure,” economist Roelof Botha, who compiles the index on behalf of Altron FinTech, said in a statement.
He added that the successive interest-rate hikes by the SA Reserve Bank remained a “thorn in the flesh of most households and businesses, as this overly hawkish policy approach is not based on any signs of demand inflation in the economy” and has wiped out the gains made since the end of the Covid-19 pandemic.
The Bank has raised interest rates by 475 basis points since November 2021, which has led to consumers spending more on their household debt as a percentage of their income, and more credit impairments.
Botha criticised the Bank’s monetary policy committee, which is responsible for interest-rate decisions, for not lowering rates despite “inflation, as measured by the consumer price index (CPI) and the producer price index (PPI) peaking more than a year ago. [This] should cause concern at National Treasury and the SA Revenue Service, as subdued household expenditure is threatening the country’s fiscal stability”.
Bank governor Lesetja Kganyago reaffirmed its policy stance on Tuesday as the Reserve Bank remains focused on anchoring inflation at the midpoint of the 3%-6% target range, but currency weakness, more debt, lower capital flows and “less co-operation” from fiscal authorities make this difficult.
The Bank’s head of economic research, Chris Loewald, said despite inflation coming down, it was expected to remain relatively high amid ongoing power cuts, which could feed into wages and prices.
According to the latest data from Stats SA on Wednesday, CPI was 5.4% year on year compared to 4.8% in August, as higher fuel and food prices took their toll.
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