INCREASES in food prices, along with rises in inflation and interest rates, will lead to a sharp deterioration in consumer credit health, which is set to plunge from stable in the last quarter of last year.
High
debt levels and financial pressure on consumers imply that their
spending will not support economic growth. Spending by households
accounts for 60% of gross domestic product.
Credit bureau TransUnion’s consumer credit index, which measures consumer credit health, is expected to fall as the year progresses after being little changed at 52.1 in last year’s fourth quarter, compared with 52.3 in the third quarter. A reading above 50 suggests an improvement in consumer credit health.
An inflation-stoking weak rand will place consumers under even more financial pressure.
"A weaker rand exchange rate raises the cost of living, while also compelling the central bank to raise interest rates. So the headwinds could become fairly substantial," TransUnion Africa regional president Geoff Miller said.
The first quarter of this year is not over yet and there have already been food price increases, rising inflation and an interest rate hike — factors that weigh on disposable incomes. Food prices are rising on drought-induced shortages and rand weakness, which makes imported maize more expensive, while inflation is rising on the weak rand. SA imported 65,000 tonnes of maize for the week ending January 29, the South African Grain Information Service said.
"Prices are already being driven up by the weak rand and will surge higher if, as is widely expected, SA’s drought causes a serious food shortage," Capital Economics economist John Ashbourne said.
ETM Analytics chief strategist Russell Lamberti said the interest rate hikes would cause many of the most financially vulnerable borrowers to default.
"The key for managing this process will be for credit providers to focus on loan quality and for borrowers to be more prudent than usual," he said.
Despite a stable consumer credit index in the fourth quarter, one of its sub-indices showed that household debt-service costs accelerated on slightly higher household indebtedness and higher interest rates. However, it was encouraging that the number of new defaults on loan repayments declined, while distressed credit and store card utilisation — a measure of distressed borrowing — remained roughly stable.
Taken together, defaults and distressed borrowing indicators implied that credit behaviour was still marginally improving in the fourth quarter, the TransUnion credit bureau said.
Credit bureau TransUnion’s consumer credit index, which measures consumer credit health, is expected to fall as the year progresses after being little changed at 52.1 in last year’s fourth quarter, compared with 52.3 in the third quarter. A reading above 50 suggests an improvement in consumer credit health.
An inflation-stoking weak rand will place consumers under even more financial pressure.
"A weaker rand exchange rate raises the cost of living, while also compelling the central bank to raise interest rates. So the headwinds could become fairly substantial," TransUnion Africa regional president Geoff Miller said.
The first quarter of this year is not over yet and there have already been food price increases, rising inflation and an interest rate hike — factors that weigh on disposable incomes. Food prices are rising on drought-induced shortages and rand weakness, which makes imported maize more expensive, while inflation is rising on the weak rand. SA imported 65,000 tonnes of maize for the week ending January 29, the South African Grain Information Service said.
"Prices are already being driven up by the weak rand and will surge higher if, as is widely expected, SA’s drought causes a serious food shortage," Capital Economics economist John Ashbourne said.
ETM Analytics chief strategist Russell Lamberti said the interest rate hikes would cause many of the most financially vulnerable borrowers to default.
"The key for managing this process will be for credit providers to focus on loan quality and for borrowers to be more prudent than usual," he said.
Despite a stable consumer credit index in the fourth quarter, one of its sub-indices showed that household debt-service costs accelerated on slightly higher household indebtedness and higher interest rates. However, it was encouraging that the number of new defaults on loan repayments declined, while distressed credit and store card utilisation — a measure of distressed borrowing — remained roughly stable.
Taken together, defaults and distressed borrowing indicators implied that credit behaviour was still marginally improving in the fourth quarter, the TransUnion credit bureau said.
by Ntsakisi Maswanganyi
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