Consumer spending put under pressure

Consumer spending put under pressure


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CONSUMER spending is expected to have come under pressure in May as high food inflation showed no signs of abating, driven by high producer prices and low statistical base effects.

Statistics South Africa (StatsSA) will this week release the consumer price index (CPI) and producer price index data amid rising unemployment in the first quarter despite encouraging economic performance.

The CPI inflation is forecast to have accelerated to 5.2 percent year-on-year in May from 4.4 percent in April, affected by the statistical base comparison after last year’s lockdown.

Aside from the impact of the base effects, economists said the upward food price pressures were expected to have remained evident in May.

Investec’s Kamilla Kaplan said May CPI would be driven higher by base effects and upward food price pressures, as well as fuel prices in spite of a 9 cents price decrease during the month.

“The food price component is expected to be a key contributor to the increase in headline CPI inflation,” Kaplan said. “The other key contribution is expected to have stemmed from the fuel price component.”

Despite the forecast contraction in May, consumer spending is expected to see fairly robust year-on-year growth in 2021, supported by a rebounding economy.

However, this spending was also extremely uneven across the wider income spectrum, especially as unemployment remained worryingly high.

The latest unemployment data increasing marginally to 32.6 percent is symptomatic of South Africa’s economic challenges and the impact of Covid-19 on the country’s economy.

A redeeming factor thus far has been the improving business confidence driven by consumer-sensitive sectors as a number of companies were satisfied with prevailing business conditions.

While the improvement in sentiment was no doubt encouraging, uncertainties remain.

Various risks such as the fast-spreading third wave of Covid-19 infections, additional lockdown restrictions, Eskom’s unstable electricity grid, and the looming threat of industrial action could easily still knock confidence in the period ahead.

Anchor Capital’s investment analyst, Casey Delport, said the economic recovery remained extremely uneven and job losses were biased towards lower-income groups. Delport said the latest data indicated that South Africa’s most affluent consumer segments continued to be the most affected by macroeconomic conditions.

“A significant portion of the rebound in consumer spending this year is largely expected to be underpinned by the high-income group,” Delport said.

“This is of course notwithstanding the higher-income base that this consumer group has as a relative buffer.

“(But) from a socio-economic perspective, the lower-income groups naturally continue to face the greatest hardships.”

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