Despite multiple global crises and heightened uncertainty due to the wars in Ukraine and the Middle East and recent political developments in major global economies, it seems sentiment in South Africa has improved. The formation of a coalition government, a slight loosening of monetary policy and the stabilisation of electricity supply that saw an end to load-shedding in March have contributed to a more positive outlook for many South Africans.
In addition, inflation has fallen continuously and Stats SA reported it to be below the target band at 2.9% for November — a rate last reported in March 2021 during the Covid pandemic.
Most importantly, food inflation saw an even more significant drop from 9% in November 2023 to 2.3% in November this year. This sharp drop in food price inflation, which is at its lowest since 2010, sends a positive signal to consumers and provides relief, especially for low-income households. Households with little money tend to allocate a disproportionally large share of their spending towards food and hence have a much harsher inflation experience compared to high-income households.
South Africa’s poorest 10% of people, who spend roughly one in two rand on food and nonalcoholic beverages still experienced inflation of 3.9% in November, while the country’s richest 10%, who allocate only around 10% of their household spending towards these items, experienced 3.0% inflation. Hence any movement in the price of food is felt more strongly among poor South Africans.
On the back of declining inflation rates — locally and internationally — the South African Reserve Bank carried out two interest rate cuts in September and November, which provided some relief to financially stretched consumers. While some might have been disappointed by the modest cuts of 25 basis points each, the Reserve Bank governor and his team must continue to keep a close eye on inflation to protect the most vulnerable members of our society.
As financial well-being and sentiment improve, consumers have started to shift spending away from essentials
Nevertheless, the improvement in sentiment is also reflected in Deloitte’s Consumer Signals data. The data, which tracks consumer sentiment, including financial wellbeing and spending intention in 20 countries across the world, has shown improvements in South Africa throughout the year. While household spending on essential items such as food and housing remains high, our data shows that spending on non-essential items including recreation, entertainment, and leisure travel as well as clothing and personal care products has seen an uptick.
Deloitte’s Food Frugality Index, which evaluates consumer behaviour at grocery stores in response to financial pressure, has also improved in recent months, reflecting a slight easing of these pressures and the emergence of more wiggle room for consumers to spend on items they want. The most dominant frugality behaviour among local consumers remains the reduction of at-home food waste. This is not only good for consumers’ wallets, but also great from a sustainability perspective given the environmental impact farming and food production have.
The slight easing of financial pressure is good news for retailers as we have entered the busiest period for many of them. Robust end-of-year spending by consumers, fuelled by the drop in inflation, the recent interest rate cuts and additional purchasing power among consumers who opted to withdraw from the savings pot of the two-pot retirement system, are likely to drive this year’s overall retail sales above pre-pandemic levels. While in the first few post-pandemic years, South African consumers were strongly focusing on groceries during the Black Friday period; preliminary results from this year’s Black Friday show that some have shifted their spending towards big ticket items such as electronics and household appliances and other non-food items.
This shift away from groceries is also reflected in our Consumer Signals data. We have seen more South African consumers indicating that they would treat themselves to clothing and accessories when making a splurge purchase.
While some datapoints paint an optimistic picture for consumers and retailers, looming electricity price increases in 2025, stubbornly high unemployment and disappointing GDP numbers for the third quarter of 2024 dampen the outlook. Therefore, it is important that focus is put on structural changes that will allow South Africa to turn the current positive sentiment into reality. A reality that results in economic growth, job creation and poverty reduction. You can’t eat sentiment.
• Murulana is an Economist at Deloitte Africa and Schaefer is Insights Leader at Deloitte Africa
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