Bright turn for consumers in South Africa – but the middle class is struggling
South African consumer confidence rebounded in the third quarter, but is expected to remain subdued as household finances come under strain from soaring oil prices driven by the war in Iran and higher interest rates.
A quarterly index measuring consumer sentiment rose to -13 in the three months through September from -19 in the previous quarter, FirstRand’s First National Bank and the Bureau for Economic Research said in an emailed statement on Thursday.
The survey coincided with an escalation of the conflict in the Middle East, during which the price of Brent crude oil surged from around $90 per barrel to above $100 in recent days.
Higher oil prices have led to increases in local gasoline and diesel prices, with another R2-per-litre hike expected in October, which will likely constrain consumers’ disposable incomes, the Johannesburg-based lender said.
“Although higher bus and taxi fares have also increased the transport costs of less-affluent consumers, low food inflation has shielded the budgets of low-income households,” Mamello Matikinca-Ngwenya, FNB’s chief economist said.
She cautioned that the central bank’s 25-basis-point interest-rate hike in May to 7% disproportionately affected middle- and high-income consumers, as they have greater exposure to formal-sector credit and spend more on durable goods than less affluent consumers.
The lender cautioned that confidence levels of high-income consumers, who have the greatest spending power in the economy, remain very low, and that the resumption and escalation of hostilities in the Middle East bodes ill for sentiment.
The “concomitant sharp increase in oil prices in recent days, the near-term outlook for fuel prices – and hence also overall inflation and interest rates – has soured,” the bank said.
“Shoppers will likely remain cost-conscious and prioritise necessities over discretionary spending in the run-up to the festive season, suggesting that consumer spending growth will remain muted and that value-for-money retailers may outperform higher-end brands,” Matikinca-Ngwenya said.
The central bank will deliver its next policy rate decision on 23 September.
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