Recent data from credit scoring company TransUnion shows that South Africans are cutting back on discretionary to deal with soaring inflation and growing economic pressure.

The company’s latest Q4 Consumer Pulse Survey showed that 67% of respondents had reduced spending on ‘extras’ such as dining out, travel and entertainment in the past three months to make room for more ‘important’ payments in their monthly budget.

According to TransUnion, even with a cutback in discretionary spending, however, 38% of consumers say they are still unable to pay their bills and loans in full.

TransUnion’s Consumer Pulse survey of 1,003 adults was conducted between 3–15 November 2022. Census statistics on age, gender, household income and region were used alongside the responses to give a more accurate representation of consumer sentiment.

Consumers cutting back on entertainment or “wants”, not “needs”, is a trend expected to continue alongside a reduction in the purchasing of retail shopping goods or large purchases like a car, the group said.

This may be a disappointment to the retail industry hoping for a resurgence in consumer spending during the festive season; however, with the cost of goods increasing dramatically, affordability will be top of mind for consumers, said TransUnion.

Other significant practices, besides cutting back discretionary spending, include cancelling subscriptions or memberships and reducing or outright cancelling digital services.

Weihan Sun, the director of research and consulting at TransUnion Africa, said high inflation and anticipated interest rate hikes may lead to more consumers defaulting on their debts.

On 18 January, Statistics South Africa (Stats SA) released its latest inflation figures, pointing to eased inflation at 7.2% in December – although this remains high and outside the band of 3% to 6% targeted by the South African Reserve Bank.

The average annual CPI for the whole of 2022 was 6.9%, reported StatsSA.

Economists predict that inflation will continue to decrease throughout the year, and that it will be within the target range of the South African Reserve Bank by the end of the year – assuming there are no more unexpected macroeconomic events.

Sun said that more people defaulting on their debt will, in turn, have negative effects on the retail sector, adding that there are already clear indications of financial stress and an expected decrease in spending across all categories.

“Gen X consumers, specifically, are showing signs of distress, with 33% expecting to be unable to repay their debts in Q4 and 62% reporting difficulty in fully servicing their current obligations. However, 41% of those unable to fully service their debts plan on making partial payments,” he said.

Over Q4 2022, all age groups were concerned over outstanding debt, with 37% of South Africans surveyed prioritizing paying down debt faster as interest rates continue to rise.

More people also sought to put more money towards an emergency fund, with 34% of respondents saying they did – an increase of 4% from the previous year.

Sun said that if interest rates continue to rise, consumers may feel additional financial pressure with the significant increase in monthly repayments on home loans and vehicle finance facilities inhibiting their ability to pay other forms of debt as they often prioritise secured lending products.

TransUnion added that the most recent interest rate increase, which was the 8th in the cycle, resulted in a total increase of 350 basis points since November 2021.

Economists from both the Bureau of Economist Research (BER) and Momentum Investments see more rate hikes on the cards for South Africa as the South African Reserve Bank (SARB) is forced to increase the interest rates to mitigate inflation.

Consensus is that South Africa will see an addition 50 to 75 basis point hike in rates in 2023, with a 25 to 50 point hike pencilled in for the Reserve Bank’s meeting next week (26 January).

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