Consumer financial stress set to hike this year with CPI and flat job market among issues

Consumer financial stress is set to hike this year to its highest level in more than a year, a new report from Dun & Bradstreet reveals.

The latest Consumer Financial Stress Index shows that after easing from a high of 24.9 points down to 14.6 points in 2013, it is projected to hit 23.4 points by June.

The survey measures consumer demand and capacity for credit. It forecasts that this year the financial position of consumers is expected to weaken, with “unmanageable” personal debts to increase.

In the first quarter of 2013, the volume of consumer debts referred to Dun & Bradstreet for collection increased by 17% on the previous quarter. In Q1 2012 there was a 33% increase, and Dun & Bradstreet expects this upward trend for Q1 to continue this year, reflecting post-Christmas spending debt.

Economic advisor to Dun & Bradstreet, Stephen Koukoulas, told SmartCompany this was an “amber light, not a red light warning” for consumers.

He says the financial stress and potential greater debt was due to a number of factors, including a run of higher house prices, low wage growth, higher unemployment levels and a lack of job security.

Koukoulas says that the recent Consumer Price Index also showed that there had been “a big pick-up in inflation in the last couple of quarters”, with the cost of many basic essentials up, such as fruit and vegetables. The latest quarterly inflation figures from the Australian Bureau of Statistics showed CPI was up 0.8%.

“This is where the Reserve Bank has to ask, is the official cash rate of 2.5% appropriate?” he says.

“Until either employment or wages growth pick up, the level of consumer financial stress is likely to remain elevated, regardless of whether interest rates remain low or not.

“It would be nice if financial stress was lowering…but consumers are borrowing…and spending.”

Over the next three months, Dun & Bradstreet forecasts that Queensland and the Australian Capital Territory will experience the highest national levels of financial stress.

In New South Wales, it is expected the stress index will reach 21.5 points by March this year, while in Victoria it is expected to rise form 17.6 points to 18 points by March.

Australian Retailers Association executive director Russell Zimmerman told SmartCompany he understood that while paying with credit cards was up, that they were getting paid down quickly.

“The Dun & Bradstreet forecast is concerning if it happens,” he says. “While spending is good for our retailers we don’t want to see a situation where consumers are overspending on credit at the detriment of the economy.”

Zimmerman says while retail did well throughout November 2013 and the Christmas period, he didn’t think it was “willy nilly spending” but “rather controlled spending within [consumers] means”.

On 14 March, a new credit reporting system will launch, which will see banks and other financial institutions record additional information about the repayment behaviour of consumers with credit accounts.

This information includes records of bills that are paid at five-or-more days late.