#BlackFriday: Wallet squeeze increases sensitivity to prices
JOHANNESBURG – Wallet squeeze have seen South African consumers growing increasingly sensitive to prices and promotions over the past several years.
However, this has also made shoppers more susceptible to large price discounts on non-essential products.
Does the local economic climate allow for South African consumers to indulge in Black Friday promotions? What is the state of household finances in this regard? There are both negative and positive considerations in this regard.
On the negative side, the most recent gross domestic product (GDP) data indicates that the South African economy was in a recession during the first half of 2018. Higher frequency data also suggests that private sector activity also deteriorated during the third quarter of the year.
South African consumers are also experiencing record-high fuel prices. The retail petrol price increased by a cumulative R3.32/l during the April–October period as a result of higher internal product prices and a weaker exchange rate.
Partly as a result of higher fuel prices, headline consumer price inflation has increased from 3.8 percent year on year in March to 4.9 percent year on year in August and September. About 0.6 percentage points of this increase was associated with an increase in VAT in April this year.
On a positive note, the narrowly defined unemployment rate is currently below the 14-year high levels seen in 2017. Despite the recession, total employment increased by 1.2 percent year on year during the third quarter of 2018.
Consumer confidence returned to net positive territory this year after four years in net negative territory. The recovery this year is linked to the appointment of a new national president, a cut in interest rates, better rains in the drought-stricken Western Cape, significant wage increases for public servants, and a slowdown in food price inflation.
A 25 basis points cut in interest rates during March and deflation in the price of imports have also benefitted consumers at the retail level. Inflation adjusted retail sales increased by an average of 1.5 percent year on year during the third quarter.
Sales of household furniture, appliances and equipment increased by a significant 9.1 percent year on year, suggesting improved consumer spending activity.
Despite these positive factors, financial planners and savings experts are warning South African consumers to not indulge in the allure of mega discounts – especially when such purchases are made on credit. According to the National Credit Regulator (NCR), four out of 10 credit active consumers are in poor standing.
Macroeconomic evidence suggests a mixed picture for South African consumers. With both positive and negative developments over the past 12 months affecting the broader economy, it is up to individual households to evaluate their financial capabilities in the face of heavy Black Friday discounts.
Some might even suggest using available funds to invest, rather than spend. Listed retail shares generally rise on Black Friday. And unlike equity trading in major markets like the US and Japan being limited on Black Friday, the JSE has a normal trading day.
Content supplied by PwC Strategy& economists Lullu Krugel, Christie Viljoen and Maura Feddersen with contributions from Nina Kirsten and Genevieve Frydman.
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