Fortunately, the signs of slowing inflation which began to appear last month in some countries have persisted into October
Consumer confidence in Africa expanded by 6 points in October maintaining the positive momentum from the last month. The index of future expectations advanced by 2 points while the index of current economic conditions surged by 18 points.
Akin to September, the performance of the household indices was mixed this month. Whereas the purchasing power and discretionary spending indices increased by 7 and 20 points respectively, the personal finance and household income indices faltered by 3 and 1 point(s) respectively. Meanwhile, households reported a further improvement to the general economic conditions as the city economic conditions index broadened by 3 points while the country economic conditions rose by a single point. Job prospects also strengthened significantly as the index accelerated by 16 points.
Turning to the countries considered by our index, there was a boost in consumer sentiment for all countries this month apart from Kenya whose consumer confidence index dropped by 5 points. Among the gainers, South Africa had the best performing index of the month as it progressed by 22 points adding onto the 59 points accrued in September. Ivory Coast also experienced a double digit increase this month (11 points) while the remaining countries gained between 1 and 6 point(s).
KASI’s global CCI grew by 6 points this month climbing from 7 to 13 hence settling in double-digit territory for the first time since March this year. This move in the global index is associated with a lift in the index of current economic conditions and the index of future expectations both of which widened by 18 and 2 points respectively.
Fortunately, the signs of slowing inflation which began to appear last month in some countries have persisted into this month. For example, in Nigeria, the monthly rate of inflation fell for second month in a row reducing from 1.8% and 1.4% in August and September respectively to 1.2% in October. However, despite this trimming of the monthly inflation rate, Nigeria’s annual inflation rate hit a new-high of 21.1% this month compared to the 20.8% recorded in September. But it turns out that the annual inflation rate registered for this month was lower than expected as economists in the country had estimated an annual inflation rate of 21.3% for October. The situation also appears to be improving in Ivory Coast where inflation in October finally eased to 6.2% after hitting a fresh 11-year high of 6.3% in September. For Ivory Coast, the calming in inflation is primarily attributed to slowing in the prices for primarily food and non-alcoholic beverages as prices for other items such as transport and housing and utilities accelerated.
In addition to easing inflation, countries in the continent are taking other measures to encourage growth of their economies that have suffered since the onset of the Covid-19 pandemic. One such country is Tanzania which has taken a different direction since President Samia Suluhu Hassan took office in 2021. While the country has not been immune to the global challenges with its annual headline inflation rate hitting a new 5-year high of 4.9% in October, the government has been embarking on campaigns to strengthen the business and investment climate with a view to attract foreign direct investment (FDI) that offer the prospect for higher potential growth and improving international competitiveness.
Moreover, the country is intensifying its engagement with the international community particularly International Financial Institutions (IFIs). Such a move will lower the political risk and may enhance the country’s economic and financial capacity to withstand any further global shocks. Such structural reforms have been apparent in other countries including Nigeria who launched the Nigeria State Action on Business Enabling Reforms (SABER) Program in September to improve the business climate. Therefore, the taming of inflation rate as well as actions by governments to bolster the business and investment climate has elicited positivity among African consumers on the current economic situation as well as the future of the continent.
Household report higher purchasing power and increased discretionary spending as inflation tapers off in the continent
The household indicators generally reflected an improvement in the conditions for households with some of them continuing with the positive moves observed last month. Most notably were the general economic conditions indices for both city and country which, after widening by more than 10 points in September, ticked up by 3 and 1 point(s) respectively this month. Another index to maintain the upward trend from last month was the purchasing power index which advanced by 7 points hence climbing from 12 to 19. The best performing household index in October though was the discretionary spending index. Following a poor performance for most of 2022 which resulted in the index falling to a year-low of -11 in September, the discretionary spending index made a significant rebound this month as it surged by 20 points thus moving back into positive territory which is certainly great for retailers in this space. The job prospects index also managed to turnaround this month where, after losing 3 points in September, the index escalated by 16 points ergo clawing back all the losses since May this year. Unfortunately, households’ incomes failed to improve as the household income index declined by a point while the personal finance index decreased by 3 points after rising by 16 points last month. Evidently, in spite of the weakness in incomes among households, the falling inflation has been beneficial to boost household expenditure and there is indeed heightened optimism among households on the future especially of jobs.
Consumer sentiment in South Africa continues growing while households in Kenya portray some pessimism on the future of the country’s economy
Focusing on the countries tracked by the index, all of them, with the exception of Kenya, experienced an increase in their consumer sentiment indices. Leading the gainers was South Africa whose consumer confidence index progressed by 22 points followed by Ivory Coast at 11 points then Tanzania, Nigeria, Ghana and Cameroon at 6, 4, 3 and 1 point(s) respectively. Meanwhile for Kenya, its consumer sentiment index sunk by 5 points reversing the upward trajectory that the index has been on since August following a peaceful election period. The country has been battling myriad of issues notwithstanding those arising from global dynamics. Kenyan households are facing a high cost of living that continues to make it difficult for them to make ends meet. According to data from the Kenya National Bureau of Statistics (KNBS), the annual inflation rate stood at 9.6% which is the highest level recorded since May 2017. This is above the Central Bank of Kenya’s target rate of inflation range that is between 2.5% and 7.5%. To compound on inflation, the Kenyan shilling which has been depreciating against the U.S. dollar which has exacerbated the cost of living given the fact that Kenya is a net-importer of the key commodities which are essential for households.
However, a major challenge for the country is the drought that is plaguing the arid and semi-arid land (ASAL) regions which, according to a UN outlook report, are experiencing the longest drought period in over 40 years. The same report provided an outlook for October 2022 to January 2023 and indicated that the number of Kenyans facing hunger is projected to reach 4.4 million during this period. The drought has meant that the contribution to the country’s food basket from the affected regions has shrunk and so the country has been forced to import from elsewhere to fill the gap. Consequently, the perception among Kenya households especially on the future is pessimistic as illustrated by the index of future expectations which deteriorated by 7 points while the index of current economic conditions expanded by 2 points (again, similar to Nigeria and Tanzania, the monthly inflation rate slowed down in October compared previous months). Furthermore, the general economic conditions for city and country worsened with the indices collapsing by 11 and 13 points respectively. The purchasing power and household income indices also weakened with the latter losing 7 points and the former sliding by 5 points. On a positive note though, the personal finance index rose by 2 points and the discretionary spending increased by a single point while the job prospects index sustained its positive momentum that began in the second half of this year by gaining an additional 4 points.
With respect to South Africa, the economic situation for the country has continued to recover. After a jump of 59 in its consumer sentiment index last month, the index advanced by another 22 points in October climbing from -28 to -6. The acceleration of the index can be primarily attributed to the index of current economic conditions which soared by 74 points as the index of future expectations stagnated at -7. Inflation in the prices of goods is cooling for the country after a difficult period early in the year. The latest data from Statistics South Africa (Stats SA) shows that, while annual consumer price inflation grew to 7.6% in October from 7.5% in September, the annual inflation rate for goods was 10.5%, down from 10.7% in September; and for services it was 4.6%, up from 4.3% in September. Moreover, the annual producer price inflation has softened for the third consecutive month with the pace reducing from 16.6 % and 16.3 % in August and September respectively to 16.0% in October. There has also been a range of positive news on the country’s employment numbers.
According to data from Stats SA, the country reported 620,000 more jobs in Q2 2022 which is an increase of 4.2% compared to the same quarter last year. The agency also recorded a 4.5% year-on-year increase in gross earnings across the formal non-agricultural economy during the second quarter. These results appear to have made South Africans optimistic about job prospects as the respective index rocketed by 71 points in October. The calming inflation in the country was also beneficial for the purchasing power and discretionary spending indices as they both surged by 25 and 78 points respectively. On the contrary though, the financial situation for households still appears to be strenuous with the household income index receding by 8 points and the household budget index dwindling by 5 points. There was also some weakness in the general city and county economic conditions as both indices slumped by 3 and 9 points respectively.
Retailers in the discretionary goods space should expect increased purchases with households looking to take advantage of the sales in November
For the first time this year, the global index has moved in the same direction for two consecutive months. The failure of the index to produce such a pattern was one of the major concerns that we had last month where, after surging by 10 points, there was an expectation of a reversal of the gains. Certainly, this is great news as it suggests that the instability of the index is waning and more importantly, it is stabilising in a direction that points towards growing consumer confidence. Another emerging trend is the fact that an increasing number of countries are seeing an improvement in consumer sentiment; in August there were 3 countries to record a higher consumer confidence index while in September the number rose to 5 countries and this month there are 6 countries.
Our analysis this month suggests that conditions are likely to improve for retailers especially for those in the discretionary goods space. Given the performance of the respective index, it appears that, with the Black Friday and Cyber Monday sales taking place in November, households are looking to splash the cash and take advantage of the offers that will be placed on discretionary items during the month. Considering that they have been unable to purchase these items this year as inflation has forced them to spend a larger proportion of their income on necessities, these sales present an opportunity for them to buy the high-value items. Therefore, retailers in the durable goods space should ensure that they have enough items in-stock to meet this demand and, after a year of weakness, they should look forward to the year ending with higher sales volumes as the holiday shopping season has arrived.
“Emerging news from the US Federal Reserve on the possibility of going slow with the rate hikes due to signs of slowing inflation is great news for the continent as several economies have been hurt by the stronger dollar. As such, it will be important for businesses and governments to monitor the situation as they plan their hedging strategies against the dollar going forward.”
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