Skip to main content

Now retail sales pose quandary for reserve bank

| Economic factors

Lower-than-expected retail sales in May have increased concerns about slower economic growth this year, which is likely to place the Reserve Bank in a bind over whether or not to raise interest rates.

The Bank’s monetary policy committee meets next week and economists are sharply divided over whether there will be a hike — the first in a year.

Some have said sagging retail sales reduced the probability of a hike but others believe the Bank has committed itself to hikes this year to curb rising inflation.

Retail sales growth dropped to 2.4% year on year, much lower than the 3.4% posted in April.

Household furniture and appliance sales hit an annual low, but sales of food in specialised stores and of clothing were up.

The figures are the latest in a series of data showing dire economic conditions. Business and consumer confidence indices have plunged to 16-year and 14-year lows, respectively, and manufacturing production fell for the second consecutive month in May, largely due to power outages.

Consumer spending has been a key contributor to economic growth over the past few years, and the sharp drops in confidence and retail sales do not augur well, with some economists saying gross domestic product (GDP) growth is unlikely to exceed 2% this year.

Higher interest rates may damp growth. But Investec economist Annabel Bishop said the Bank had regularly said that interest rates were likely to rise this year. "We continue to expect a 25 basis point hike next week," she said.

Ms Bishop said household expenditure growth was likely to average a modest 2.2% this year with GDP growth at 2%. Sales of luxury goods were expected to come under pressure and retail sales for the year were unlikely to exceed last year’ s.

Nedbank economist Dennis Dykes said it was increasingly unlikely that the Bank would hike rates next week.

Another factor to consider was the likelihood of the US Federal Reserve increasing rates in September and whether or not the Reserve Bank would wait until then for a hike.

UFX.com MD Dennis de Jong said the Bank could time its move for when the Fed took its step.

Stanlib chief economist Kevin Lings said the retail sector was under pressure, with little indicating that there would be relief soon and that the weakness would persist as consumers remained hard-pushed.

He said retail activity had lost momentum in the past three months after successive hikes in the fuel price and growing concerns about job cuts.

"We also have the prospect of the Reserve Bank increasing rates again," Mr Lings said.

John Ashbourne, Africa economist at Capital Economics, said his GDP tracker suggested growth fell from 2.8% in April to just 2.2% in May with the inclusion of the latest retail data.

"And even this rate of growth, which is only (slightly) above the first quarter’s 1.3%, is largely dependent on the faltering retail sector," he noted.

Mr Ashbourne reckons the Bank will respond to rising inflation and a weak rand by hiking rates by 50 basis points this year, with the first as early as next week. "Rising borrowing costs will curb the spending power of a population that is already heavily indebted," he said.

Pin It

Related Articles

Petrol price hike on Wednesday, but some diesel...

By: News24   Petrol will be hiked on Wednesday (03/04/2024), while wholesale diesel prices are mixed.  

SPAR shares tips on how to lighten the financia...

For many, Easter is a time of celebration and tradition, marked by gatherings with loved ones and delicious meals. However, the financial strain brought on by the increased cost of living may require families to adjust their usual celebrations, wh...

Reprieve for consumers at till as prices tick m...

By: Given Majola - IOL Business Consumers got a reprieve at the till this month as the cost of the average household food basket showed a marginal increase.

SA consumers feel the big squeeze: 99% have cha...

According to NIQ, 44% of South African consumers feel they are in a worse financial position this year compared to a year ago.

SA consumers are swapping Easter eggs for house...

By: Dhivana Rajgopaul – IOL Business South African consumers are choosing to prioritise buying household food essentials, instead of spending money on Easter eggs.