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Minister of Cooperative Governance and Traditional Affairs Des Van Rooyen. Picture Credit: Gallo Images
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Feeling the pinch

By unknown | May 15, 2008 | COMMENTS [ 0 ]

Adele Shevel

Adele Shevel

Shell-shocked consumers snapped their wallets shut in March as the rising cost of debt hit home.

After months of slowing growth in spending, retail sales for March were down on the figure for the same month last year, showing that consumers are tightening their belts.

But analysts expect the Reserve Bank to remain unflinching in its intention to raise interest rates for the 10th time since 2006 when the Monetary Policy Committee meets next month.

Reserve Bank Governor Tito Mboweni hinted strongly on Tuesday that interest rates would rise again because the economy was growing too fast.

Consumer demand has been the primary driver of economic growth over the past few years with retail contributing 14percent to the economy.

According to the latest retail trade sales figures from Statistics South Africa, which were released yesterday, retail sales fell 1,7percent in March from a year ago.

This is the first annual negative growth rate reported for this year based on these monthly figures and the sharpest decline since 2000.

Weak sales figures are a result of rising inflation, higher interest rates, higher debt levels and tougher credit conditions.

Fewer trading days in March because of Easter holidays may have contributed to the decline, though some analysts say the extra shopping days should have boosted retail returns.

Kevin Lings, an economist at Stanlib, said the March reading was a little below expectation.

"The basic concern is that since consumers are facing a range of larger than normal price hikes, which impact more fully on non-discretionary spending, the amount of money available for discretionary spending will be substantially curtailed this year," he said.

Non-discretionary spending includes petrol, debt servicing costs, food, electricity, rentals, education, health-care and municipal assessment rates.

Absa Capital said retail sales data together with developments in vehicle sales and lacklustre manufacturing activity had provided strong evidence of monetary policy success over consumption behaviour.


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