South Africa’s retail sales fell for the fourth consecutive month in June, data showed on Wednesday, a further sign that consumers are feeling the pinch of higher interest rates.
The South African Reserve Bank has lifted its repo rate by 500 basis points to 12% since June 2006 in a bid — unsuccessful so far — to bring targeted CPIX (consumer inflation less mortgage costs) inflation back down to within a 3% to 6% band.
In a sign that tighter monetary policy is crimping consumer demand, Statistics South Africa said retail sales dropped by 2,6% year-on-year in June at constant prices, compared with a contraction of 3,4% in May.
In the three months to the end of June, retail sales — a key measure of consumer demand — decreased by 2% compared with the same period the previous year, also at constant prices.
”Its not a good picture for the retail sector, consumer spending power has been diminished. The retail figures support the view that consumption has responded to the rate hikes,” said Brait Merchant Bank economist Colen Garrow.
”I don’t think it’s appropriate to raise interest rates further; we have kind of done that far too much and we should hold back.”
The central bank will announce its next decision on interest rates from about 3pm on Thursday, after a two-day meeting of its monetary policy committee, with the majority of economists polled by Reuters expecting rates to stay on hold.
Consumer demand has been the main driver over the past couple of years of economic growth, which has averaged 5% over the last four years but is seen slowing to about 4% this year, weighed down by higher rates and a nagging electricity crunch.
The CPIX inflation measure accelerated to a new record high of 11,6% year-on-year in June, but analysts expect it to peak soon, before embarking on a downward trend next year, when Stats SA implements a re-weighted consumer price basket.
Earlier this month, central bank Governor Tito Mboweni said the bank was concerned CPIX had remained outside the target range, but added that it was influenced by the likely outlook for inflation, rather than the last number recorded. — Reuters