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02 Aug 2006 12:58
South Africa’s retail sales quickened in May, adding to the case for higher interest rates, but the figures were seen as too dated to have much impact on the outcome of the central bank’s policy meeting on Thursday.
Retail sales leapt by 10,6% in the year to May at constant prices, accelerating from an unrevised increase of 9,7% in April, Statistics South Africa said.
Consumer demand has been the main driver of faster growth in Africa’s biggest economy over the past couple of years, pushing household debt to record levels and putting further pressure on the country’s ballooning trade deficit as imports climb.
Higher interest rates are expected to curb that trend this year, after the country’s central bank raised its key repo rate by half a percentage point to 7,50% in June—the first increase in almost four years.
Economists expect another half a percentage point hike when the South African Reserve Bank ends its two-day policy meeting on Thursday, with markets fretting over the possibility the increase may amount to a full percentage point.
“It probably would be another factor to consider [for the Reserve Bank] but obviously not as strong as others that indicated what happened since June,” said Econometric Treasury Management economist Monica Ambrosi.
“All together, they point to a rate hike ... I think the central bank will stick with gradual hikes unless of course their [forecast] model is throwing out even worse numbers for inflation than it was in June.”
South African bonds weakened slightly after the data, extending a steep decline sparked last week by news that producer prices soared by 7,5% in the year to June—a three-and-a-half year record.
In the three months to the end of May, retail sales rose by 10,3% compared to the same period 12 months ago, also at constant prices, the figures showed.
Independent calculations show that on a monthly basis, retail sales jumped by three percent in May, after an insignificantly small decline in April.
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