A glimmer of hope for battling consumers who are earning less than they were a year ago and cutting back on personal spending, as salaries fail to keep pace with inflation, is that interest rates are peaking and are expected to drop before year-end.
This is according to PwC’s third Economic Outlook report for 2023, which features insights from the firm’s newly released Global Consumer Insights Survey (GCIS) Pulse 5 report. The research focused on the impact of supply chain disruptions on consumer shopping behaviour, concern about personal financial situations, and the willingness to pay extra for a product with positive Environmental, Social and Governance (ESG) attributes.
The survey showed that supply chain disruptions had affected consumers most significantly by increasing the prices of household goods, leading to longer queues in-store, items being out of stock, and reduced product range available. Seven out of ten respondents indicated that they were frequently or almost always impacted during the three-month survey period by higher in-store prices. Shoppers are cutting back on buying, and seven out of ten consumers said they had stopped or delayed non-essential spending on goods such as appliances and personal vehicles.
PwC South Africa chief economist Lullu Krugel said the survey showed that consumers were worried about their financial position.
“Given the weak outlook for job growth in 2023-2024, the rising cost of living, elevated interest rates, and the decline in buying power over the past year, it is not unexpected that South African consumers are downbeat about their personal financial outlook. Results from our survey show that three out of four South African respondents are either very or extremely concerned with their personal financial situation. The dire financial outlook once again heightens our concern about rising social risk,” Krugel said.
According to the report, employment increased significantly last year, but the 2023 outlook was more conservative with the expectation that just 100 000 new jobs will be created, while lower take-home pay and spiralling inflation erode workers’ buying power.
However, PwC noted that headline inflation was now declining towards the central bank target range of 3-6 %, while interest rates were peaking, with an expected final 0.25 percentage point increase to be implemented when the SA Reserve Bank Monetary Pricing Committee made its announcement on Thursday. However, the SARB surprised most analysts who had pencilled in the lower 0.25 percentage hike, when it announced a 0.50 percentage interest rate increase, taking the repo rate to 7,75%.
PwC senior economist Christie Viljoen said the firm expected interest rates to start dropping before the end of 2023.
“We see room for the repo rate to start declining late this year as inflation moderates towards the midpoint of the SARB’s 3%-6% target range. The key factor here is the speed at which inflation is able to moderate,” Viljoen said.
“There have been many media reports over the past month about consumer goods companies (including food producers) warning of more supply chain price pressure that will need to be passed on to consumers this year.”
Interest rates are currently at the highest since the 2008-2009 global financial crisis and rising debt service obligations are an added burden for consumers. PWC said in its report that it expected debt cost as a percentage of disposable income to increase from 7.2% last year to 9.1% in 2023.
This will further impact the ability of consumers to repay their loans. From a banking perspective, the collapse of two US-based banks in March raised concerns globally about the stability of banking systems that are dealing with consumers struggling to repay debt. However, PwC’s recent Major Banks Analysis report found that higher earnings and optimised capital demand have helped keep local banks’ capital ratios well above the levels required by regulations.
