January retail sales slowed by inflation

South Africa’s retail sales expanded at a slower rate in January, data showed on Wednesday, as yet another sector of the weakening economy succumbed to rising inflation and higher lending rates.

Figures showed sales of household furniture and appliances slowed sharply, growing 2.6% year-on-year in January against 6% in the previous month, while sales of general goods and pharmaceuticals also stuttered.

A slowdown in spend on home improvements was also recorded, indicating a shift in consumers’ priorities away from big-ticket items in favour of cheaper goods that satisfied immediate needs.

“While the weakness was widespread, it was most pronounced in durable goods, suggesting that consumer confidence is slipping,” Capital Economics analyst John Ashbourne said.

The government sees Africa’s most industrialised economy growing at 0.9% in 2016, but some analysts are expecting growth of about 0.5% and expect South Africa only narrowly to avoid a recession.

South Africa’s long-standing problem of weak demand has lately been exacerbated by a political row involving Finance Minister Pravin Gordhan, which has raised concerns that the country’s credit rating could fall to “junk” and contributed to a sharp selloff of the rand.

SIGNS OF STRAIN

Analysts said consumers were shifting their spending to smaller goods such as cellphones, purchased at smaller all-purpose stores.

Africa’s largest grocer Shoprite, considered a barometer of lower-tier spending, posted an 8.9% rise in half-year profit in February, as cash-strapped consumers increasingly turned to cheaper, no-frills retailers.

Retail sales had bucked the downward trend as both manufacturing and mining shrank in January, but they are now showing signs of strain, with consumer inflation forecast by the central bank to spike at 7.8% this year starting to weigh.

The South African Reserve Bank’s (SARB) quarterly bulletin found domestic spending was under pressure, with household debt accounting for 77.8% of disposable income, while the cost of servicing that debt was on the rise.

Increased debt, most of it unsecured, represented the gloomier side of consumers’ choices as they battle to weather more difficult economic times.

Nearly half of all credit-active South Africans, or 9.9 million people, are over-indebted, according to debt counselling firm Debt Rescue, and the number will swell as interest rates and inflation continue to rise while the economy slows.

“It’s having a devastating effect on consumers,” said Debt Rescue chief executive Neil Roets of the high inflation.

“People are financing their essential living expenses like food and daily necessities on credit and that’s very dangerous.”

On Thursday the SARB monetary policy committee is expected to keep lending rates unchanged after hiking them by 175 basis points in the last two years.

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