Big turn for South Africans earning more than R20,000 a month
While South African consumers remain under pressure, those earning more than R20,000 have turned more positive – the most positive they have been in the last three years – as views on household finances improved.
This is according to the latest FNB/BER Consumer Confidence Index (CCI), which shows that overall consumer confidence remains in the negative territory (below zero), albeit slightly more upbeat.
After dropping to -17 index points in 23Q4, the CCI improved to -15 in 24Q1.
With a long-term average CCI reading of zero (since 1994), the latest reading of -15 points to a South African consumer still under pressure.
Nevertheless, consumer sentiment is significantly higher than the -23 reading recorded during 23Q1 when stage 6 load shedding, increasing food prices and successive interest rate hikes hurt consumer confidence.
This suggests that retail sales volumes could start to recover after a challenging 2023.
The increase in the CCI during 24Q1 could be ascribed to a recovery in the economic outlook sub-index of the CCI and another improvement in the household financial outlook sub-index.
After dropping to -28 in the 23Q4, the economic outlook sub-index jumped back to -22.
The sub-index measuring the appropriateness of the present time to buy durable goods, such as furniture and household appliances, dropped from -25 to -30, reducing the gains on the overall CCI.
What is notable is that the outlook on household finances is in positive territory, seeing a third straight quarterly increase, jumping from +3 to +8.
A breakdown of the CCI per household income group shows that the slight overall improvement was driven by an uptick in the confidence levels of high-income households (those earning more than R20,000 per month).
High-income confidence increased from -19 to -14 index points on the back of major improvements in the high-income consumers’ ratings of the outlook for the national economy and their household finances.
On the other hand, the confidence levels of middle-income households (earnings between R5,000 and R20,000 per month) remain unchanged at -17 index points.
The confidence of low-income households (earning less than R5,000 per month) also dropped from -13 back to -16.
All three income groups still consider the present time highly inappropriate for purchasing durable goods (even more so than 23Q4).
However, high-income households became noticeably more optimistic about their financial prospects (+13), which was far better than for the middle-income (+6) and low-income (+5) households.
“Significantly lower levels of load-shedding and a deceleration in inflation – particularly on the food price front – likely supported consumer confidence during the first quarter,” said FNB Chief Economist Mamello Matikinca-Ngwenya.
“However, job losses in the fourth quarter and renewed fuel price hikes in February and March probably countered some of these positive developments, particularly for low-income households. The tightening in fiscal policy announced in the February Budget Review probably also clipped consumer confidence.”
No inflationary adjustments were made to personal income tax brackets in the February budget, meaning that the bracket creep through inflation-linked salary increases will erode the real disposable income of taxpayers, especially middle- and high-income households.
On the other hand, the R20 increase to the R350 Social Relief of Distress (SRD) grant should add approximately R2.2 billion per year in spending power to poor households.
Unlike the other two sub-indices, FNB noted the decline in the consumers’ rating of the present time to buy durable goods .in the first quarter
“Above-inflation increases in vehicle prices (+7.2%), a very weak rand exchange rate at the time of the CCI fieldwork and the realisation that interest rates are unlikely to be cut during the first half of 2024 probably prompted consumers to postpone their durable goods purchases.”
Good times ahead for retail
The increase in the confidence of high-income consumers is particularly good news for the retail sector, as wealthy consumers have more spending power than low- and middle-income consumers.
Combined with a deceleration in inflation, improved consumer sentiment should bolster retail sales volumes in the coming months.
The slight recovery in the FNB/CCI corresponds with the muted increase in the retail sales volumes in the BER’s latest retail survey.
That said, consumers across the board remain wary of purchasing big-ticket items, meaning that durable goods sales will underperform in relation to the other consumption categories in the first half of this year.
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