Stats SA have released the retail sales data for July 2011. According to this latest survey, retail sales rose by a more encouraging 1.3%m/m, in real terms, seasonally adjusted. On an annual basis, retail sales recorded growth of 2.8%y/y, up from 2.2%y/y in June. This was better than market expectations for a rise of only 2.0%y/y, although the forecast is based on a small survey sample.
In the past few months the SA retail sales data has been extremely erratic. This volatility reflects a combination of base effects, with annual comparisons distorted by the World Cup in 2010, as well as the timing of public holidays.
Using a moving average of retail sales, the pattern is far clearer (see chart attached). This pattern suggests that the rate of growth in retail sales in losing momentum. This was reflected in the Q2 2011 National Accounts data on consumer spending; and the latest spending data for July suggests that this loss of momentum has continued into Q3 2011.
Looking forward, SA consumer activity is likely to face increasing strain. This is due to a range of cost-push factors that are systematically eroding the household sector's spending power. These include higher energy costs, transport costs, food costs, education fees, medical service costs and water costs. The problems is that most consumers cannot avoid these increases, as these expenses relate to necessities or essential goods. So while consumer inflation remains inside the target range, it does so because a number of non-essential costs that are very well contained.
A good example is the inflation rate for telecommunication equipment, which is currently -25.4y/y. While this helps to keep the overall measure of inflation under control, it is not a benefit that most households experience on a daily basis because they don’t purchase telecommunication equipment that regularly.
Another example is the cost of a new vehicle, which has an overall inflation rate of -0.5%y/y (with three times the weight of petrol in the CPI basket), yet petrol inflation is 23.5%y/y. Most household don’t buy a new car every month, but certainly experience the high petrol inflation on a monthly basis. Thus experienced inflation is higher than measured inflation.
So the households sector's spending power is systematically taking strain due to a rise in prices that they experience on a daily basis and cannot easily avoid, (administered price inflation is currently 11.9%y/y). At the same time the consumer is not supplementing their monthly income with the use of credit for a variety of reasons (which typically occurs around this stage of the business cycle) and the country is struggling to create employment. The consequence is that the rate of growth in consumer activity is systematically slowing.
Ultimately, SA consumer activity will systematically lack vibrancy in 2011/2012 without a meaningful increase in employment.
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