Mariam Isa
15 May 2008
Johannesburg — RETAIL sales fell unexpectedly in March, sliding 1,7% compared with the year-earlier month as soaring inflation and debt costs and a spate of public holidays took a toll on the economy's third-biggest sector.
The fall was the sharpest in seven-and-a-half years but was seen as unlikely to prevent another interest rate hike at the Reserve Bank's policy meeting next month, given its determination to quash price pressures.
Retail sales, which account for about 14% of the economy, rose by an upwardly revised 2,9% in February, also on a seasonally adjusted basis, the data from Stats SA showed yesterday.
"We expect retail sales to remain under pressure through the year as a combination of power outages, high debt- servicing costs and inflation continues to bite into retail activity," said Absa Capital economist Monale Ratsoma.
He says the outlook for retailers is worsening due to the lagged impact of previous interest rate hikes, which can take up to two years to make themselves fully felt in an economy.
The Reserve Bank has lifted its key repo rate by 4,5 percentage points to 11,5% since June 2006, and governor Tito Mboweni sent a strong message earlier this week that further increases were on the cards.
"It's very clear that monetary policy has to tighten a bit, and it's clear that the economy is growing above potential. Things have to slow down a bit," he told a public forum.
His comments suggested the Bank was unperturbed by the deepening slowdown in consumer spending, the economy's main engine of growth.
Retail sales grew by a meagre 0,6% in the first quarter of this year compared with the corresponding quarter last year, when they expanded by 9,5%, the data showed.
But they rose by an even slower 0,3% in the final quarter of last year, when sales dipped for two months in a row.
After adjustments for inflation, retail sales have been declining since June last year, Stats SA said. The downtrend coincides with the introduction of tougher credit regulations, which would also have curbed household spending.
The figures are also in line with monitoring by the Retailers Liaison Committee, an industry body. It says retail sales growth slowed to an annual rate of 2,6% in March from 4,5% in February and 5,3% in January.
Sales of household furniture and appliances -- the category most sensitive to changes in interest rates -- plunged by 11,9% in the year to March, marking the 10th month in a row of an annual contraction.
Nedbank economist Johannes Khosa says that although another interest rate hike next month appears to be a foregone conclusion, it may mark the top of the cycle.
There was real risk of another hike in August, but by then "overwhelming evidence of a much weaker economy should start to impact on monetary policy decisions", he said.
Manufacturing figures last week also recorded a surprise dip with output falling by an annual rate of 1,1%.
Rising exports are likely to support factories as a weaker rand makes local goods more competitive globally. But domestic demand will continue to weaken. Household spending has slowed steadily since the fourth quarter of 2006, when it rose by 3,8%, figures from the Reserve Bank show.
Debt service costs climbed to 10,9% of disposable income in the same quarter, a nine-year peak. T his is still well below a peak of about 15% in 1998, but analysts say consumers may be in more pain now.
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