SIMON BROWN: I’m speaking now with Johan van Tonder, Financial Recovery Economist at Momentum. Johann, I appreciate the morning time. [Regarding] the consumer financial vulnerability index – which you do in conjunction with unisa – the 2nd quarter data has just come out and it shows that the consumer is under extreme pressure. Gasoline goes up, food, interest rates. Consumers are simply being squeezed in all directions.

JOHAN VAN TONDER: yes. Good morning. Indeed. The second quarter [was] not a good time for consumers. The index of financial vulnerability of consumers dropped significantly from 53.4 points to 48.5 points. The deterioration was related to spending on income, savings, and debt service. Consumers have struggled with all of these components, rightly so because of the factors you just mentioned. All of this has resulted in consumers feeling the pressure, and we can see that in the financials we analyzed for the second quarter.

SIMON BROWN: Are we seeing a change in consumer behavior? Of course we are. It’s getting harder for them. There are debts that are not paid, savings are probably reduced. Are there any positives to be gained from this, or are all these behaviors in response to what ends up being a negative pressure on their finances?

JOHAN VAN TONDER: I guess if we want to find the positive, consumer behavior will change in a positive way, what we have seen is a lot [fewer] shopping for well-being – in other words, purchases that consumers make for things that they do not really need, but do just to feel good, as well as impulse purchases. They also dropped a lot.

We also saw that consumers are now shopping and finding information about prices, about interest rates, about where they should borrow, and trying to find help and so on. So definitely the behavior has improved and I think that’s definitely a positive thing.

SIMON BROWN: Good. Maybe we’re getting a little smarter, unfortunately, as our wallets tighten. You mentioned that we were down pretty sharply from the first quarter. We are better than we were in the second quarter of last year, but of course it was still the pandemic – lockdowns and such.

Looking at this quarter, we see a drop in gasoline, but of course rates are still higher, [and] An increase in utility tariffs is approaching. There is some light on the horizon for the current quarter, but I have a feeling it isn’t getting any better in a hurry.

JOHAN VAN TONDER: Yes, you are right. It doesn’t get better in a hurry. But the good news is that utility rate increases will be lower than a year ago, but still higher and rising more than, say, wages and so on – which continues to put a lot of pressure on consumer disposable incomes. So yes, it would look a little bit better than the second quarter, but it’s still going to be a tough quarter.

So we’ll have to wait and see when we get the third quarter results, what factors actually increased or decreased the financial vulnerability in the third quarter compared to the second quarter, as you rightly said, [and] also the third quarter of last year. Remember there was unrest in KwaZulu-Natal in the third quarter of last year, so that should also factor into whether it’s better or worse than last year.

Another thing we noticed – and it’s a little disturbing – is one of the main reasons [behind] the cause of the vulnerability is consumer access to resources [has] dropped sharply; in other words, access to borrowing [from] family or friends or transfers or even new or higher transfers from the government. We have to remember that in the third quarter of last year we received social assistance of 350 rand per month. Nothing new or new is coming. These resources are dissipated because family and friends are also now under pressure.

SIMON BROWN: Yeah, that’s the perfect pressure storm going on there. Yes, gasoline may be cheaper by 2.60 rand per liter in September, but there will be other pressures.

We’ll leave it there. Johann van Tonder, Financial Wellness Economist at Momentum I appreciate early mornings.

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