Belinda Beresford It may be a sunny Christmas this year, but it’s unlikely to be that cheery for retailers who rely on the shopping frenzy, aided by 13th cheques, to provide a hefty chunk of their annual sales. Brooding over the shoulders of shoppers will be the South African Reserve Bank, eager to ensure that inflation is kept firmly under control. The Reserve Bank is on a mission to reduce CPIX – a measure of inflation that excludes mortgages – to between 3% and 6% by 2002. And to achieve that end it is prepared to wield the interest rate whip if necessary to curb over-enthusiastic spending and price rises. This week the Reserve Bank nudged up the repo rate – the rate at which it provides liquidity to the commercial banks – by 25 percentage points (0,25%). This was done despite the release of consumer inflation figures a day later that were in line with expectations. Many economists viewed the rise as more of a hint than a wielding of the big stick, a reminder that plateauing or falling interest rates could not be taken for granted. The rise pushed the repo rate up to 12%, which could possibly see banks decide to push their prime interest rate up from the current 14,5%. Whether they do or not, the rise was a shot across the bows of consumers, who were only just recovering from a period of extremely high interest rates. South Africans have been curbing their spending: on average a South African spends 57% of his/her income on servicing debts as opposed to 65% last year. An added pressure is fuel – the price of petrol is expected to rise again this month, with simultaneous increases in other petroleum derivatives such as paraffin, which tends to be the fuel of the poor. Rising fuel prices put pressure on prices across the economy through their influence on transport costs. Although members of the Organisation of Petroleum Exporting Countries have expressed concern about the rising price of oil, fears about future prices are heightened by the tension in the Middle East. The clashes between Palestinians and Israelis have inflamed other Muslim countries, many of whom are uncomfortably close to the world’s primary oil supplies. At the beginning of October the Bureau for Economic Research said that its consumer confidence index had remained unchanged over the third quarter of the year. However, the majority of consumers polled expected their own finances – and the economy as a whole – to deteriorate over the next year. In a bad sign for retailers, the survey also found that consumer uncertainty meant many felt they should avoid new debt and curb spending.
Meanwhile, South Africans planning to do their Christmas shopping abroad had better think twice, with the rand having dropped below R7,70 to the dollar and below R11,22 to the pound.