Cape Town - Consumer confidence remained at record high levels during the second quarter of 2006, according to the latest FNB/BER consumer confidence index (CCI) released on Wednesday.
Higher interest rates, volatile financial markets, higher transport costs and food prices may, however, have an eroding effect on these high levels of confidence in subsequent quarters.
First National Bank (FNB) and Stellenbosch University's Bureau for Economic Research (BER), said in a statement the CCI declined by an insubstantial one index point from plus 21 during the first quarter to plus 20 during the second quarter of 2006.
The second quarter results extended the high consumer confidence level to six consecutive quarters.
"The FNB/BER CCI has never before, in its close to a quarter of a century history, remained at such a high level for such a long uninterrupted period."
Price hikes
During the second quarter, some developments probably undermined consumer confidence, whereas others were supporting. Together these developments had no noticeable net effect on overall consumer confidence, the statement said.
Negative developments included the rand/US dollar exchange rate depreciating from 6.19 at the end of March (when the fieldwork of the first quarter survey was completed) to 6.67 by the end of May (when the second quarter's fieldwork was completed).
Other factors included the petrol price increases, acceleration in food prices, and a slowed rate of increase in average house prices.
FNB/BER also noted that the fieldwork for the second quarter survey was completed before the Reserve Bank increased the interest rate on June 8 by half a percentage point.
Positive developments included share prices on the JSE breaching the 22 000 level for the first time in mid-May, which meant it rose by an impressive 4 000 index points since the beginning of the year.
Employment on the rise
Except for the manufacturing sector, employment continued increasing in the other sectors covered in the BER's surveys during the second quarter.
The generous personal tax rate cuts, announced in the national budget in February, took effect in the second quarter of 2006.
FNB chief economist Dr Cees Bruggemans said the interest rate increase in June and prospects for further increases, as well as increased JSE volatility, might reduce high income earners' confidence during subsequent quarters.
The substantial rise in transport costs and food prices could do the same to low income earners' confidence.
However, continued employment growth and this year's personal tax rate cuts would continue supporting consumer confidence.
"Should consumer confidence edge lower during the rest of the year, credit growth will probably subside and the growth in consumer spending will move closer in line with real after-tax household income growth," Bruggemans said.