A Ramaphosa government likely to lift consumer confidence

Low-income households experienced financial strain towards the end of last year as a result of food inflation and rises in the price of petrol in 2016 and 2017, as well as high unemployment rates, says the latest FNB and Bureau of Economic Research (BER) Consumer Confidence Index.

The rand is currently trading at a high of R11.80 to the dollar up from R16.80 in 2017.

The survey shows that consumer confidence slipped to an all-time low in the last quarter of 2017 compared with the high in the third quarter.

But the election of Cyril Ramaphosa as the ANC’s president could see consumer confidence improve in 2018, said Investec chief economist Annabel Bishop.

“The rand has recently strengthened on Ramaphosa’s appointment to president of the ANC, positive comments on ending corruption, repairing SOE [state-owned enterprise] governance and the health of public finances, maintaining key institutional strengths and promoting economic growth, as well as USD weakness,” says Bishop.

The index also shows that consumers’ view on the appropriateness of the time to buy durable goods fell. Low consumer confidence levels have also affected consumer outlook on household finances, which dropped. Bishop predicts it is likely to improve this year when consumer levels improve.

“Petrol price cuts feed through immediately to inflation, with CPI [consumer price index] inflation set to drop below the midpoint of the inflation target of 4.5% in February,” said Bishop, “as it would influence the SARB [South African Reserve Bank] to take a lower CPI outcomes as the period falls within the inflation target.”

Bishop added that the rand could move to R11 to the dollar should President Jacob Zuma resign to make way for Ramaphosa to lead the country “without any conditions that hamper his ability to follow the free market reforms necessary to avoid further credit rating downgrades, eradicate corruption and deliver rapid economic growth”.

The strengthening of the rand could also see consumers make savings from a petrol price cut, increasing their purchasing power and driving durable goods sales.

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Thulebona Mhlanga
Guest Author

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