Updated: Sep 14
After moving into negative territory in August, consumer sentiment bounced back into positive territory in September as the index accelerated by 10 points climbing from -3 to 7.
KASI’s global CCI advanced by 10 points in September after receding by 5 points in the preceding month. While the index of future expectations gained 15 points, the index of current economic conditions fell by 3 points.
Generally, there was positive movement in the household indices considered. With the exception of the discretionary spending and job prospects indices which stumbled by 4 and 3 points respectively, all the other household indices heightened in September. The household income index recorded the largest increase of 19 points, while the purchasing power and household budget indices rose by 13 and 16 points respectively. Meanwhile, the general economic conditions indices for both the city and country strengthened by 15 and 14 points respectively.
Examining the countries tracked, there was optimism among consumers in majority of the countries analysed. Ivory Coast, Kenya, Nigeria, South Africa and Tanzania all saw an improvement in their consumer sentiment indices with South Africa’s index undergoing the largest expansion of 59 points. On the other hand, Cameroon and Ghana witnessed a deterioration in the consumer sentiment indices for their countries with Ghana recording the biggest loss in consumer confidence as its index shrunk by 10 points.
After moving into negative territory in August, consumer sentiment bounced back into positive territory in September as the index accelerated by 10 points climbing from -3 to 7. The rebound in consumer sentiment can be primarily attributed to the index of future expectations which surged by 15 points. Meanwhile, the index of current economic conditions continued on the downward trend observed last month with the index slipping by an additional 3 points this month.
Inflationary pressures remain to be the challenge across countries in Africa and the world. In Nigeria for example, the Consumer Price Index (CPI) report shows that inflation hit a new 17-year high after climbing to 20.77% in September from 20.52% in August. Similarly in Tanzania, its inflation rate rose to a five-year high of 4.8 % in September compared to 4.6% in August however, it is still the lowest rate in the East African region. Nevertheless, an examination of the month to month change in inflation suggests that prices may be stabilising. Once again, turning to Nigeria, its CPI report indicates that, on a month-on-month basis, the CPI expanded by 1.36% in September compared to the 1.77% increase recorded in the previous month. This is also the case in Tanzania where, despite a rise in inflation of 0.1% between August and September, inflation had dropped by 0.4% between July and August. This stabilisation in prices could explain why the magnitude of the decline in the index of current economic conditions this month is smaller than that of last month.
As illustrated by the index of future expectations there is optimism among households on the future of the economy. This optimism is also reflected within the business community in some countries.
A CEO Survey conducted by the Central Bank of Kenya (CBK) in September 2022 revealed that business confidence for the next 12 months rose a year-high of 61% from 52 and 51% in July and May in spite of soaring inflation. This renewed investor confidence for Kenya comes after the country went through a peaceful general election period in August, as well as new business prospects in the country’s green economy, agriculture, manufacturing and motor industries. Some countries in the region are also undertaking structural reforms to support future economic growth. For example, Nigeria, with support from the World Bank, has launched a USD 750 million Nigeria State Action on Business Enabling Reforms (SABER) Program whose objective is to improve (1) the efficiency of land administration, (2) the regulatory framework for private investment in fibre optic infrastructure, (3) services provided by investment promotion agencies and public-private partnership units, and (4) the efficiency and transparency of government-to-business services in participating states. All these explain the positive outlook across both households and businesses on the future state of the economy.
Households report a recovery in their purchasing power and personal financial situation although discretionary spending continues dwindling
Turning to the household indices considered, majority of them managed to recover in September after faltering in their performances last month. At the forefront was the general economic conditions indices for both the city and country where households showed much more optimism on these two aspects as the indices tracking the two elements surged by 15 and 14 points respectively. Households also reported an improvement in their income situation with the household income index escalating by 19 points hence rising from 13 to 32. Furthermore, the purchasing power and personal finance indices finally reversed the downward trend observed in the preceding two months with the former gaining 13 points (climbing from -1 to 12) and the latter increasing by 16 points. Unfortunately, job prospects and discretionary spending were unable to follow suit as they weakened yet again in September. The job prospects index shrunk by 3 points while the discretionary spending index lost 4 points falling from -7 to -11 thereby attaining a new low for this year. Following the discussion earlier, it appears that the stabilisation of prices as illustrated by the “cooling” in the month-on-month changes of the consumer price index has been beneficial to the income and spending situation for households. Moreover, the heightening of the general economic condition indices for both city and country reinforces the optimism among households on the future.
After attaining an all-time low in August, consumer sentiment in South Africa bounces back while consumer confidence in Ghana disintegrates due to ongoing economic woes
With the exception of Cameroon and Ghana, all other countries experienced a gain in their consumer sentiment. Consumer confidence in Ghana fell furthest with the index weakening by 10 points. Conversely, South Africa recorded the largest advancement in consumer sentiment for the month with the index ascending by a whopping 59 points. Last month, South Africa’s consumer confidence index plunged to the lowest level ever recorded since inception as the index sunk to -87. Fortunately, it managed to bounce back by 59 points this month and reach -28. This rebound in the consumer sentiment index can be primarily attributed to the index of future expectations which rocketed by 78 points while the index of current economic conditions expanded by 11 points. Similarly for South Africa, the stabilisation in prices appears to have led to the boost in confidence among households. After striking a 13-year high in year-on-year inflation of 7.8% in July, South Africa’s headline inflation rate slowed for the second month in a row reducing to 7.5% in September from 7.6% in August according to data from Statistics South Africa. On a month-to-month basis, consumer inflation decreased from 0.2% in August to 0.1% in September. The producer price index (PPI) which measures changes in the prices of goods bought and sold by manufacturers also followed a similar pattern. In July, producer inflation as measured by the PPI hit a 14-year high of 18%. However, it has since slowed for a second straight month easing to 16.3% in September from 16.6% in August. The deceleration in producer inflation was mainly driven by lower fuel costs in the country. Consequently, households reported a lift in their incomes and purchasing power.
The household income and budget indices leaped by 88 and 77 points respectively while the purchasing power and discretionary spending indices grew by 56 and 12 points respectively. Additionally, the general economic condition indices for country and city moved back into positive territory as both indices shot up by 86 and 85 points respectively and finally, the job prospects index rose by 11 points. Evidently, the slackening in inflation has led to optimism on the future of South Africa’s economy. Focusing on Ghana, its consumer confidence index slid from 12 to 2 which is the biggest loss this year in terms of magnitude but not the lowest level attained by the index in 2022 (in March 2022 the index was at -8). Ghana’s economy has suffered significantly in 2022 and the country is in a full-blow recession. Inflation in the country is at its highest reading since July 2001 and it has accelerated for a 16th straight month. In fact, data from the Ghana Statistical Service shows that annual inflation has climbed from 13.9% in January to 37.2% in September. To make matters worse, according to a Bloomberg report published in October, its local currency, the Ghanaian cedi, is the worst-performing currency this year as it has tumbled by more than 45% against the dollar which has been unfavourable for the country given its position as a net-importer. As a result, the prices of imported goods have surged faster than those of domestic products.
Furthermore, international credit rating agencies have downgraded the country to junk status due to its unsustainable and growing debt burden which has denied the country access to global capital markets required to service its debts and support its local currency. Therefore, to achieve macroeconomic stability the country has applied for a USD 3 billion IMF bailout program starting in the first quarter of 2023. Nonetheless, Ghanaian households are clearly pessimistic about the country’s current and future economic conditions as the indices following these two elements wavered this month with the index of current economic conditions dipping by 6 points and the index of future expectations collapsing by 11 points. In addition, both the city economic conditions and country economic conditions indices deteriorated this month with the former losing 31 points and the latter worsening by 33 points. Meanwhile, despite of an increase in the household spending and budget indices by 9 and 6 points respectively, households reported a slump in their incomes as well as expenditure on discretionary items by 7 and 11 points respectively. The job prospects index also slipped for a second consecutive month falling by an additional 2 points in September.
Even though there are positive signs in consumer sentiment and inflation, retailers, especially those in the discretionary goods space, still need to exercise caution in their operations
The gain in consumer sentiment observed this month is the largest that we have recorded thus far in 2022. However, there is need to curb our enthusiasm on this finding for the following reasons: First, as the global index is an average of the performance of individual countries’ indices, the expansion in the global index was largely driven by the surge in South Africa’s consumer sentiment index; Second, while this is the biggest increase in the index for 2022, the level where the index has settled this month is still below the highs for the year; Lastly, if we examine the movement of the index this year, we notice that there has been no situation where the index has moved in the same direction for successive months i.e. the index has neither risen nor fallen for two months in a row, and so far, the losses have outweighed the gains this year which is indicative of a downward trend in 2022. Whether this trend will be broken is unknown but these observations clearly illustrate the need for us to be wary of the performance of the index this month.
In spite of this, there are signs of positivity for some retailers in the continent especially those based in countries where inflation is cooling such as those in Nigeria, South Africa and Tanzania. With the prices stabilising, retailers and producers can be able to better manage their costs which will benefit their planning and resource allocation. This also means that the final prices of the products they sell will level-out which will be good for their customers. But it is clear that, even in these countries where inflation is slowing, households’ expenditure on discretionary items is still subdued as a significant proportion of their income is allocated towards regular expenses that have become more costly while their incomes have failed to similarly increase. Therefore, retailers in the discretionary goods space need to remain cautious even while inflation is cooling and consumer sentiment is heightening until signs of expenditure on discretionary items are much more favourable.
“While slowing inflation is good news for African economies, the current rates are still above the target range for majority of the central banks. This means that central banks are likely to continue raising rates until inflation comes down to the target levels which is bad news for borrowers.”
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