South African retail-sales growth jumped to 10,1% year-on-year in March, official data showed on Wednesday, pointing to persistently high consumer spending and supporting the case for higher interest rates.
A robust consumer appetite has been the main driver of faster growth in Africa’s biggest economy in recent years, but has added to inflationary pressures and has, so far, shown few signs of slowing despite interest rate increases in 2006.
Statistics South Africa said retail sales quickened from an annualised 8% in February, and increased by 9,3% in the three months to the end of March, compared with the same period the previous year.
”The renewed acceleration in retail growth could be seen as a negative development from a monetary point of view, given that the Reserve Bank wants a clear moderation on demand growth,” said Elize Kruger, economist at Kagiso Securities.
”This is not the case as we see here.”
In an effort to rein in household demand, the Reserve Bank raised its key repo rate by two percentage points to 9% in four stages between June and December last year.
The bank’s monetary policy committee kept rates on hold in February and April, although Governor Tito Mboweni has warned that high consumer demand growth is still a concern.
Slower growth in February had raised optimism that consumers were beginning to heed the central bank’s calls to curb spending, but the reversal may force the monetary policy committee’s hand on rates next month.
”Our own forecast was for 6,6% [so] 10,1% is almost shocking … they will definitely have to take a look at this as there was a slight cooling and suddenly you have this spike,” Efficient Group economist Fanie Joubert said.
Poor response to tightening
In its latest biannual policy review statement on Tuesday, the central bank said CPIX inflation should remain within its targeted 3% to 6% range, but could be pushed higher by rising prices and a poor response to past monetary tightening.
The central bank’s monetary policy committee will meet again on June 6 to 7 to decide its next move on rates. Analysts are still divided on whether the monetary authorities erred in leaving them unchanged at this year’s first two meetings.
”At this stage, I still would not call for another rate hike in June, but risks of tightening remain,” said Adenaan Hardien, chief economist at Cadiz African Harvest.
Soaring domestic spending has in recent months fuelled rising demand for credit, although private sector credit growth braked slightly to 24,76% year-on-year in March from February’s 26,12%.
Robust spending has also pushed household debt to a record 73,8% of disposable income.
Finance Minister Trevor Manuel recently said that some ”exuberance” in consumer spending had been tamed, but warned the central bank would have to raise rates should consumers continue to spend as they had been.
Runaway consumer demand has also boosted imports as domestic supply fails to cope, keeping the trade balance in deficit and adding pressure on the rand. — Reuters