Rising interest rates make consumers think twice about splashing out

Thomas McLachlan

Thomas McLachlan

Retailers are expected to see a slowdown in sales this year after a strong 2006 as consumer spending tapers off on the back of interest rate hikes, said the University of South Africa's Bureau of Market Research.

"Slower growth in retail trade is anticipated because of an expected slowdown in consumer spending this year after stricter monetary policy. In general, it is expected that the strong credit-driven retail spending spree has run its course and that the general consumer environment will become gloomier," said bureau head Deon Tustin.

He said retail sales growth would slow to 8,6percent this year in contrast to the 10,2percent last year.

Despite the slowdown, Tustin said there was still enough demand to keep prices rising which, coupled with higher interest rates, could make times a little tougher for consumers.

"Not only have interest rates started to increase in 2006, but extensive borrowing by some consumers has left them in dire straits. The lag effect of interest rate hikes last year is anticipated to [increase rapidly] this year," he said.

The less optimistic outlook follows a bumper festive season, which showed the last signs of customer resilience against higher rates and saw the retail industry post record profits.

Renaissance Asset Management head of research Nothando Ndebele agreed with the bureau's view that retail sales would definitely slow but, "it's not going to fall off the cliff".

"It's been a very easy market for retailers over the past four years and we saw the slowdown begin last year," she said.

In terms of prices, she said that import quotas, which were now in place to encourage retailers to source locally, would start affecting clothing prices.

Chief executive of Edcon's department stores division Jon Spotts said that it was too early to tell if import quotas were causing prices to rise.

Tustin said that because of these trade tariffs and price inflation, consumers would pay 6percent more for clothing this year. - With I-Net Bridge