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South African Consumers Reel Under Impact of Inflation, Interest Hikes

21 July 2022 TransUnion

Quarterly TransUnion Consumer Pulse study finds household incomes up, but discretionary spending down

Nearly half of South African consumers (44%) say they will not be able to pay at least one of their current bills and loans in the next three months, according to research conducted by TransUnion in late May and early June. And with high inflation rates and forecasted continued interest rate hikes on the horizon, the study also found the majority (52%) of households said they will cut back on their discretionary spending.

The cuts in discretionary spending come despite just under a third of respondents (31%) to TransUnion’s quarterly Consumer Pulse study (1) reporting their household income improved in the last three months, an increase of five percentage points from the prior quarter. In all, 26% of respondents said their household income decreased in the last three months.

The improvement in household income was largely due to South Africa’s unemployment statistics dropping from a record-high of 35.3% to 34.5%2, said Lee Naik, CEO of TransUnion Africa.

“At the start of Q2, the South African annual inflation rate was at 5.9%, consistent with levels observed in prior months and aligned with market forecasts. However, this is the 12th consecutive month where annual inflation has been at the higher end of the median of the South African Reserve Bank’s (SARB) target range of 3%–6% at 6.5%. For South African consumers, the combination of ongoing rate hikes means higher monthly repayments on their debt obligations, on top of sharply increased food and fuel prices,” said Naik.

While most consumers (93%) in the survey said they believe access to credit and lending products is important to achieve their financial goals, less than half (42%) reported they had sufficient access to credit. In all, 40% of consumers are planning to apply for new or refinance existing credit. This aligns with the findings of TransUnion’s quarterly Industry Insights Report, which measures consumer credit trends found in TransUnion’s database. That report found that credit card originations increased 27.6% in Q1 2022 from the same period in 2021. Personal loan originations were up 8.5% year-on-year, although still lower than pre-pandemic levels.

In the Consumer Pulse study, more than half (51%) of consumers said they had considered applying for credit or refinance existing credit, but decided not to. The reasons for abandoning their applications for credit were high costs (32%), an alternative funding source (27%), or a belief that their application would be rejected due to their income or employment status (25%).

Managing financial choices
Most consumers said monitoring credit is at least moderately important (89%), with six in ten (62%) saying they monitor their credit at least once a month. Most (53%) believe their credit scores would increase if businesses used alternative credit information in addition to standard metrics.

“It’s critical that consumers keep tabs on their credit report to stay on top of their financial during these challenging economic times,” said Naik.

Consumers can get their free annual credit report here.

1 TransUnion’s Consumer Pulse survey of 1,004 adults was conducted May 26–Jun 8, 2022 by TransUnion in partnership with third-party research provider, Dynata Adults 18 years of age and older residing in South Africa were surveyed using an online research panel method across a combination of desktop, mobile and tablet devices. Survey questions were administered in English. To increase representativeness across resident demographics, the survey included quotas to balance responses to the census statistics dimensions of age, gender, household income and region. Generations are defined as follows: Gen Z, born 1995–2004; Millennials, born 1980–1994; Gen X, born 1965–1979; and Baby Boomers, born 1944–1964. These research results are unweighted and statistically significant at a 95% confidence level within ±3.1 percentage points based on a calculated error margin.
2 https://tradingeconomics.com/south-africa/unemployment-rate#:~:text=From%20Record%20High-,South%20Africa%27s%20unemployment%20rate%20eased%20to%2034.5%25%20in%20the%20first,35.3%25%20in%20the%20prior%20period

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