Spiking food inflation is driving people to spend 50% more on groceries than they did in 2019, while rolling blackouts are driving an increased spend on takeaways and restaurant dining.

These were two of the key trends in the Visa Discovery SpendTrend23 report released on Friday. Hylton Kallner, chief executive of Discovery Bank, said that while it was easy to be swayed by a negative narrative about financial trends and the implications for SA’s economic prospects, the data showed that the economy was often more resilient than we gave it credit for.

The comprehensive report, which covers four years from 2019 to 2022, reflects trends and changes in spending patterns before, during and after the Covid pandemic, looking at Discovery Bank clients and Visa card users in SA. Statistics show that Discovery Bank clients were more cautious during the pandemic years, spending 13% less than before, but then showed a faster recovery in spend per card compared with other South Africans. Discovery Bank clients on average spend 28% more than the average South African on a like-for-like basis.

Despite their higher spending patterns, Discovery maintains that its clients are more engaged with their finances, particularly since the bank rewards clients for positive banking behaviour such as:

• Spending less than they earn;
• Saving regularly;
• Insuring themselves against high-cost unexpected events;
• Paying off property sooner; and
• Investing for the future and retirement.

In the mass market segment (those who earn less than R100,000 a year), expenditure on groceries shot up almost 50%. “Affluent clients are better able to manage food inflation by substituting for lower price items, and taking advantage of promotions or bulk savings. Mass consumers are at a disadvantage … the impact of food inflation is so much more significant,” the report stated.

Trading Economics’ global macro models reflect that food inflation in South Africa may be as high as 16% by the end of Q1:2023. In the long term, Trading Economics expects food inflation to trend around 6% in 2024 and 5% in 2025.

The Chief Economists Outlook report from the World Economic Forum shows that 68% of economists expect the global cost-of-living crisis to ease by the end of this year.

Benay Sager, head of DebtBusters, said the full impact of successive interest rate increases since November 2021 and higher inflation rates was now fully evident in consumer finances.

“Although it seems counterintuitive, lending activity has increased as interest rates have risen because consumers supplement their income with credit, using unsecured loans as a lifeline. The data bears this out: average loan size increased by 31%, and 96% of consumers who applied for debt counselling in the last quarter of 2022 had a personal loan.”

Sager said that ironically it was a series of interest rate reductions starting in the second quarter of 2020 that contributed to the pressure many consumers were experiencing now. These rate cuts resulted in associated decreases in the average interest charged for bonds and vehicle finance. The attractive rates encouraged people, especially younger consumers, to buy vehicles and houses.

“When the interest rates began to rise again in late 2021, these consumers started to feel the increased burden of servicing asset-linked debt. The average interest rate for a bond went from 8.3% in the fourth quarter of 2020 to 10.8% in the fourth quarter of 2022,” he said.

Courtesy of Daily Maverick – read full article here.