Ayanda Shezi

Economics Correspondent

CONSUMER confidence stayed near its record high in the third quarter of this year, buoyed by an environment of low inflation and interest rates.

Barring any unforeseen shocks, consumer spending is expected to remain strong for the next year or so, although higher fuel prices could erode households’ purchasing power to some extent, First National Bank (FNB) chief economist Cees Bruggemans said yesterday.

The consumer confidence index released yesterday by FNB and the Bureau for Economic Research was at 17 in the second quarter, unchanged from the previous quarter.

The index reached a record of 20 in the second quarter of last year.

"Historically low interest rates, consecutive personal tax rate cuts and stable prices of durable and semidurable goods have strengthened households’ ability to spend," said Bruggemans.

Interest rates are at a 24-year low, and the Reserve Bank’s monetary policy committee is not expected to increase rates when it meets today, or in the remainder of the year, although economists forecast a rate hike early next year.

Since June 2003, the Bank has cut rates 6,5 percentage points.

Rising oil prices have been the main reason for the rise in CPIX (consumer price index less mortgage costs) as they have translated into higher fuel costs locally.

In August, CPIX, the Bank’s targeted measure of inflation, rose to 4,8% year on year, as fuel prices rose. It is expected to peak at around 5,5% in the first quarter of next year.

Transport costs have a weighting of 15,3% in Statistics SA’s inflation basket.

From June to August, when the third quarter confidence index survey was conducted, the petrol price increased 54c/l.

Bruggemans said although higher transport costs and slowing house prices could have placed a damper on consumers’ confidence in the third quarter, these were offset by low food prices, and a pick-up in employment on the back of higher economic growth.

"Persistent high consumer confidence has underpinned the continued strong growth in retail sales, new vehicle sales and residential building activity during the third quarter," said Bruggemans.

Absa’s house price index increased 17,6% year on year in September, while vehicle sales were up 27% in the first nine months of the year.