Surge in retail sales is a bit of an illusion

South African retail trade sales surged 8.6% in the year to July, Statistics South Africa said on 14 September. That suggests a strong spending start to the third quarter, but base effects were the main reason for the number as July 2021 was marked by a wave of lethal riots that targeted retail outlets in Gauteng and KwaZulu-Natal.

On a monthly basis, sales declined 0.1% in July, which is effectively a flat number compared with June. In the three months to July, sales fell 1.3%.

So, the data hardly suggest a significant recovery in the sector, and it is never a good sign for the wider economy when South Africans are not spending like drunken sailors.

“The loss of momentum in monthly sales volumes, which is more informative given the base effects, is consistent with mounting pressure on consumer discretionary incomes due to rising interest rates and a higher cost of living,” Siphamandla Mkhwanazi, FNB senior economist, said in a note on the data.

“The month of July saw fuel prices increasing by R2.57, the biggest margin on record. This would have adversely affected consumer sentiment and their ability to spend on other goods.

“Resilience in consumer spending has been underpinned by robust growth in nonlabour income, a continued drawdown on savings accumulated during lockdown, as well as a lift in consumption credit uptake,” Mkhwanazi said.

“Nevertheless, consumers are confronted by higher prices, rising interest rates, and slow growth in employment, which could ultimately dampen the recent spending resilience.”

Consumer inflation is running at 7.8% and the Reserve Bank is in a hiking cycle and has already raised interest rates by 200 basis points. There are hopes that inflation is at or near its peak as oil prices have cooled of late, delivering some muchneeded relief for South African consumers at the pump.

But rates are still expected to climb as the central bank is determined to stop inflation in its tracks and protect the value of the fragile rand.

On top of all of this, the economy contracted in the previous quarter and, even if a recession is averted, growth this quarter will be anything but robust. South Africans are not about to spend their way to prosperity.