LOWER retail trade so far this year is reflective of the pressure on consumers’ discretionary income.     African News Agency (ANA)
LOWER retail trade so far this year is reflective of the pressure on consumers’ discretionary income. African News Agency (ANA)

Sales are on the rise, as are hopes for an interest rate cut

By Kabelo Khumalo Time of article published Jul 18, 2019

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JOHANNESBURG - Retail sales in South Africa increased 2.2percent year-on-year in May following an upswing of 2.7percent the previous month, raising hopes that the much-anticipated expected interest cut today would provide a further boost to embattled households’ bottom lines.

Data from Statistics South Africa (StatsSA) yesterday showed that household furniture, appliances and equipment, pharmaceuticals and medical goods, as well as cosmetics and toiletries, and food, beverages and tobacco pushed up sales during the period.

The positive print came a day before the Monetary Policy Committee of the South African Reserve Bank is due to announce its interest rate decision, with the markets having largely pencilled in a 25 basis point cut.

Jacques Nel, an analyst at NKC Africa Economics, said the 25-basis point cut had become more than a reality.

“However, a rate cut of such magnitude is unlikely to have a notable effect on consumer spending, given dismal confidence levels,” Nel said.

“In addition, moderating disposable income due to higher administered prices that came into effect on July 1 will also weigh on spending in coming months.”

JSE-listed companies have posted poor retail sales data in recent months, as highly indebted consumers held back from spending and consumer confidence remained muted with the economy under pressure.

However, a resilient rand supported by the dovish international monetary policy atmosphere had given rise to expectations that the Sarb had sufficient room to ease rates.

Investec chief economist Annabel Bishop said that inflation as measured by the Consumer Price Index was expected to remain moderate in the foreseeable future, boosting further prospects for a rate cut.

“It has become the case in South Africa that the more moderate inflation environment has engendered lower inflation expectations, as the increase in the cost of living proves lower than in previous periods, often causing consumers to expect similar going forward, thereby entrenching lower inflation expectations,” Bishop said.

Retail shares have dropped 10 percent so far this year.

FNB economist Siphamandla Mkhwanazi said the lower year to date data in retail trade was reflective of persistent pressures on consumers’ discretionary income, via weaker labour markets and higher income taxes. “This suggests that consumers remain cautious about their spending behaviour,” Mkhwanazi said.

“Nevertheless, the increasing unsecured credit uptake, lower fuel prices as well as our expectation of lower interest rates could provide auxiliary support to retail sales volumes in the coming months.”'


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