CONSUMERS STILL UNDER PRESSURE EVEN WITH LOWER OIL PRICES

CONSUMERS STILL UNDER PRESSURE EVEN WITH LOWER OIL PRICES 

Consumers are still under pressure even with lower oil prices. Lower inflation helps, but credit conditions, employment prospects and the outlook for confidence all suggest caution. This is the view of the Principal Economist of Absa Capital, Mr Peter Worthington. Worthington was speaking at the Economic Policy Dialogue which was hosted by the Department of Trade and Industry (the dti) in Boksburg. The topic of the dialogue was “The impact of lower oil prices on the South African economy” 

The purpose of the dialogue was to encourage on-going and dynamic debate on contemporary issues that impact South African society in general and the economy in particular.

“The amount of R13 billion has been injected back into the pockets of South African households due to lower oil prices to date, but consumer debt burden is still very high,” said Worthington.

According to Worthington, encouraging private sector’s growth will boost faster economic growth and create sufficient real jobs which will also address the current account deficit.

The Chief Economist of Investec, Ms Annabel Bishop says the National Credit Regulator’s data on impairments shows a sharp drop in impaired consumer records from 48.1% to 45%, but this she said did not imply consumers are able to pay their debts better.

“The South African Reserve Bank is expected to follow the United State of America’s monetary policy normalisation path indicated out to 2018, with the Fed hiking its interest rates potentially as early as June this year and failure to raise the interest rates would see marked rand depreciation, and higher inflation,”  added Bishop.

According to Bishop, 2015 has been characterised by dampened inflation expectations globally on the sharp drop in oil and other commodity prices, although there has recently been a comparatively small price increase. South Africa’s CPI inflation is likely to fall just below 4.0% this year, pushing the real interest rate up towards 2.0%.

Even without a rise in the repo rate this year, Bishop said South Africa was likely to see the difference between CPI inflation and its interest rates widen significantly, which would normally herald some rand strength.

The commodity prices have fallen substantially, particularly over the turn of the year, leading to a moderation in global inflation expectations for 2015. The Brent crude oil price dropped more than halved in value from mid-2014 to January 2015, reaching US$46.4 per barrel (bbl) (R534.88/bbl) from USD112/bbl (R1196.22/bbl), although it has ticked up since.

 Both Peter and Annabel estimated the oil price to hover below $65 per barrel for the entire year of 2015, due to lower global demand for oil and discovery of shale gas in the USA. USA is well poised to become the net-oil exporter and in the same breath South Africa is sitting on a vast amount of gas deposits to still be explored and extracted.