May retail sales disappoint as high power, fuel prices weigh

A LACKLUSTRE consumption trend, higher fuel prices and rising inflation have contributed to the disappointing retail sales data for May, the last major economic release ahead of the Reserve Bank’s meeting next week to decide on interest rates.

Retail sales grew by a disappointing 2.4 percent year on year in May after expanding by 3.4 percent in April, data released yesterday by Statistics SA shows. This was below market expectations of 2.5 percent.

On a month-to-month basis, sales were up 0.1 percent and rose by 2.8 percent in the three months to May compared with the same period last year.

With the exception of dealers in food, beverages and tobacco, growth in sales of dealers in other industries declined.

Laura Campbell, an economist at Econometrix, said rising inflation, more generally in recent months, will have contributed towards an erosion in the growth of disposable income and therefore retail sales.

“This has undoubtedly eroded growth in disposable income of households.”

Following the outbreak of xenophobic attacks in April, foreign tourists from the rest of the African continent may have been hesitant to travel to South Africa in May.

Investec chief economist Annabel Bishop said the weak nature of retail sales growth this year was symptomatic of a weak, constrained economy, which was not seeing the promotion of ease of doing business or tripling the size of the private sector, and so a tripling in private sector employment could not occur.

This can only be achieved by a reduction in state control in the economy and a marked reduction in the size of the state.

“Privatisation of the supply of electricity is crucial in South Africa to free up finances, human capital and resources, while security of supply of electricity can be maintained by the state retaining ownership and control of distribution.”

Campbell said the decline in retail sales in May added to a list of other real economic indicators suggesting the domestic economy was too weak to withstand a rise in interest rates at the conclusion of the monetary policy committee (MPC) meeting next Thursday.

She said furthermore, even though inflation was on an upward trend, it was still within the Reserve Bank’s official inflation target of 3 percent to 6 percent.

US rate hike

“As a result, one expects that the Reserve Bank will hold off increasing the repo rate just yet,” Campbell said.

Some economists have said they continue to expect a 25 basis point hike next week, and another one before year end.

Dennis Dykes and Johannes Khosa, economists at Nedbank, said general economic conditions remained weak, while inflation was heading higher again. However, it was still forecast to end the year at or below the Reserve Bank’s upper target range.

“The recent fall in oil prices and the rejection of Eskom’s tariff increase application reduces the probability of any move in rates at next week’s MPC meeting.”

A key determinant of when domestic interest rates start rising would be the timing of an interest rate hike in the US economy, Campbell said.

Federal Reserve chairwoman Janet Yellen said yesterday that the US central bank remained on track to raise interest rates this year.