retail sales increase more than projected

RETAIL sales rose more than expected in the year to March, ending 13 straight months of contraction and suggesting consumer demand is catching up with a broader economic recovery.

Retail sales rose 1percent year-on-year in March at constant prices compared with a revised 1,3percent contraction in February, Statistics SA said yesterday. A series of interest rate cuts have helped support consumption, but yesterday's upbeat sales data reduced the chances of further rate cuts, analysts said.

Consumption, previously a key driver of growth, had been in decline for the past year as people struggled with heavy debt and rising unemployment after some 900000 jobs were shed during South Africa's first recession since 1992.

Sales, however, decreased by 0,6percent in the three months to March, compared to the same period a year ago.

The figure was higher than market expectations of 0,4percent year-on-year.

Nedbank Group economist Johannes Khosa said: "It is an encouraging number (and) an indication that consumer confidence is improving on the back of low interest rates and low inflation.

"Retail sales should firm during the remainder of 2010 as consumer confidence consolidates gradually on the back of lower interest rates and inflation as well as some stabilisation in job market."

Despite the unexpected increase in job losses in the first quarter of the year, Nedbank still expected the labour market to stabilise during the year as improving conditions reduced the likelihood of further job losses.

Kgotso Radira, an economist at Investec, said retail sales were expected to show some growth but remain in low single digits for the remainder of the year.

"Low interest rates and moderating inflation rates should boost household demand, but petrol price and electricity price increases will increase the standard of living and could slow the recovery. We expect the next change in interest rates to be an increase, early next year."

Reserve Bank Governor Gill Marcus had already signalled a no-change decision last month when she said there was limited scope for further monetary easing and that rates would be stable for "some time". - Reuters, Sapa, and Staff Reporter