Stats SA have released the retail sales data for May 2011. According to this latest survey, retail sales fell by a dramatic 4.7%m/m, in real terms seasonally adjusted, during May. On an annual basis, retail sales recorded zero growth, dramatically down from the exceptionally high and revised growth of 10.0%y/y in April.
The collapse in sales was certainly well below market expectations, but it should be recognised that as much as the latest annual rate of growth of 0.0%y/y is shockingly weak, the 10%y/y growth recorded in April was shockingly strong. Clearly the data has been at least party impacted by the timing of the Easter season and associated holidays, which moved from very early in April in 2010 to very late in April 2011.
Perhaps it is more helpful or instructive to look at the annual rate of change in sales for the three months to May; which was up 5.0%y/y. However, while this is a more encouraging rate of growth, it is well down on the recent peak of 7.7%y/y in December 2010, and on a clear downward trend. It is also instructive to see that the latest quarter-on-quarter (Dec 2010 to Feb 2011 compared with Mar 2011 to May 2011) rate of change (seasonally adjusted) has also slowed appreciably to only 0.3%q/q. This slowdown in retail activity will clearly hurt the Q2 GDP growth estimate.
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 sectors 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 are very well contained. A good example is the inflation rate for telecommunication equipment, which is currently -28%y/y. While this help 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 -0.9%y/y (with three times the weight of petrol in the CPI basket), yet petrol inflation is 21.4%y/y. Most household don’t buy a new car every month, but certainly experience the high petrol inflation on a monthly basis.
Thus the household’s sector 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 12.0%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.
It is also worthwhile to note that the inflation rate for very low income earners is now above the inflation target at 6.5% (because the CPI basket of goods for low income earners has a higher weight of essential items such as transport and food), which is clearly aggravating the current labour unrest.
Ultimately SA consumer activity will systematically lack vibrancy in 2011/2012 without a meaningful increase in employment.
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