Retail sales DATA expected to come out this week will reflect the interest rate hike ate into consumer by Simphiwe Mbokazi 453

Johannesburg - Economists expect February’s retail sales to show year-on-year growth of between 2.9 percent and 3.7 percent, a sharp fall from January’s 6.8 percent.

The retail numbers, which are due to be released tomorrow, will give an indication of how the repo rate hike of 50 basis points on January 29 eroded consumer spending power in February. Economists expect that the rate hike made consumers less inclined to spend.

Gina Schoeman at Citi Research said a slowdown in retail sales would be reasonable given the hike in January would have cramped consumer spending power the next month.

Schoeman added that this was reflected in the first-quarter consumer confidence survey released by FNB and the Bureau for Economic Research. It showed a greater number of consumers were postponing the purchase of durable goods.

Investec economist Kamilla Kaplan said the 6.8 percent increase in retail sales in January was off a low base in January last year and also related to a substantial revision of December’s outcome, which produced an upside bias to sales growth.

“February is therefore likely to be more reflective of underlying consumer consumption activity,” she said.

Various measures of consumer spending, which makes up nearly two-thirds of gross domestic product, signalled that the magnitude of spending growth was likely to be moderate in future.

“Passenger vehicle sales growth, which can be considered as a leading indicator of household consumption expenditure, has been contracting for six consecutive months,” Kaplan said.

Indicators such as the consumer confidence index continued to signal pessimism, while the pace of increase in non-mortgage household credit extension had eased to 9 percent year on year, from more than 20 percent at the start of last year.

Durable goods retailers had been the hardest hit as consumers continued to postpone purchases in this category.

Schoeman said the general dealer and clothing and footwear categories were important to watch because they represented almost two-thirds of overall retail sales.

Other economists expected “softer-than-usual” month-on-month growth in sales by general dealers, a category that includes food retailers, and clothing and footwear retailers.

The February consumer price index showed clothing and footwear delivered the sharpest monthly rise in prices in five years.

“This, together with the 50 basis point rate hike, will have compromised consumer appetite for semi-durables,” Schoeman said.

Other factors that might stifle retail sales growth included reduced access to credit.

Kaplan believed increased pressure on household finances and, by extension, the rise in non-performing loans had prompted lenders to tighten credit conditions when lending to households.

“Slowing household consumption expenditure, coupled with the relatively subdued start to the year on the production side of the economy, augur for a measured pace of monetary policy normalisation,” she noted.

Schoeman said retail sales would remain subdued this year as a result of dampened household consumption growth amid higher inflation. - Business Report