Interest rate cuts and two-pot payouts have lifted sentiment in middle-income households, with confidence in the low-income bracket still in the doldrums with the high cost of living suffocating this grouping.
Results from the second-quarter FNB/Bureau for Economic Research consumer confidence index (CCI) show sentiment was higher among middle-income households, faring better than high-income and low-income consumers.
The CCI describes low-income households as those earnings less than R5,000, while middle income is those who earn R5,000-R20,000, with any income beyond R20,000 constituting high income.
FNB chief economist Mamello Matikinca-Ngwenya said middle-income confidence is significantly higher compared with high- and low-income confidence.
The CCI shows low-income households are not optimistic about their prospects, weighed down by high cost of living and increasing food inflation.
“Additional two-pot pension fund withdrawals at the start of the new financial year in March and another 25 basis point [bps] cut in the prime interest rate at the end of May are supporting highly indebted middle-income households in particular,” she said.
“Lower fuel prices and above-inflation adjustments to social grants are bolstering the spending power of low-income households. However, most low-income households do not have access to formal sector credit or pension funds and therefore do not benefit from interest rate cuts or two-pot withdrawals.”
On the back of a subdued inflation outlook, the SA Reserve Bank has reduced interest rates by a cumulative 50bps in the first half of this year, with economists expecting another 25bps rate cut next month, which would take the prime lending rate down to 10.5%.
According to SA Reserve Bank data, more than 2.4-million people cashed in about R43bn of their savings retirement under the two-pot regime.
Matikinca-Ngwenya said food inflation increased from 1.5% year on year in January to 4.4% in May and is projected to tick up further, which will “disproportionately affect low-income households”.
“With inflation heading north and two-pot withdrawals expected to peter out, the growth in real consumer spending is forecast to moderate towards 2026,” she said.
“A projected further interest rate cut in July should partially shield middle- and high-income consumers from the impacts of increasing inflation and higher personal income taxes, but rising food prices will hurt the spending power of low-income households.”
The overall index came in at minus 10 in the second quarter of 2025, rebounding from a near two-year low of minus 20 in the first quarter.
The index’s economic outlook shows the subindex rebounding from minus 32 to minus 18. This was attributed to the cancellation of planned tax hikes and the resolution of the government of national unity budget impasse.
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