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Johannesburg - Retail sales fell year-on-year for the fourth consecutive month in June, declining 2.6% in real terms after falling 3.4% in May. Some economists said this was clear signal to the Reserve Bank that there was no need to raise interest rates further.
Statistics SA said retailers had reported a real decrease of 0.7% in sales in the first six months of 2008 compared with the first six months of 2007.
This is a far cry from the heady growth of 8.5% achieved over the same period in 2007.
The extent of the decline in interest-rate sensitive retail sales is most apparent in the category for household furniture, appliances and equipment.
In current values - that is, not adjusted for inflation - year-on-year spending in this category in the second quarter was 6% lower.
Stats SA doesn't adjust these figures for the effect of inflation, which means the drop would be even bigger in real terms.
ETM economist George Glynos said the data favoured monetary policy being kept on hold. The Reserve Bank is currently holding its monetary policy committee (MPC) meeting and will announce its decision on interest rates tomorrow.
The Bank has raised the repo rate by five percentage points since June 2006, taking the prime overdraft rate to 15.5%.
Glynos said interest rate hikes weren't the only factor behind the weakness in retail sales. Higher fuel and food prices and inflation in general had eaten into consumers' disposable incomes and were taking their toll.
He didn't expect a massive worsening in retail sales from current growth rates, but expected the sector to remain under pressure for a while still.
Absa strategist Jeff Gable said the point of monetary policy was to dampen domestic demand, and there was plenty of evidence that domestic demand had cooled, as was clear from these latest retail sales figures.
Therefore he expected the Reserve Bank to keep the repo rate steady at the MPC meeting, and to start cutting rates from April next year.
A contrarian view came from Standard Chartered economist Razia Khan, who said the Reserve Bank would be wrong not to raise rates tomorrow, despite the weak retail sales figures.
She said the latest figures should be seen against the background of four years of a consumer boom. Declines in retail sales were coming off an exceptionally high base.
Looking ahead, the cycle would turn, while there was concern about inflationary expectations due to double-digit wage settlements.
- Fin24.com