Retail sales dropped 2.5% year-on-year in June reflecting the pressure consumers were feeling as increasing inflation eroded their purchasing power. Retail sales in May grew by a skimpy 0.1%. Consumers were spending their money on textiles and clothing and food in June.
While retailers in hardware, paint and glass saw an 8.6% decline in sales. General dealers, which make up 45% of the retailer’s basket, recorded a 5.7% drop in sales while pharmaceuticals and medical goods, cosmetics and toiletries declined 4.3%.
Siphamandla Mkhwanazi, the senior economist at FNB, said the resilience in consumer spending was underpinned by robust growth in non-labour income, a continued drawdown on savings accumulated during lockdown, as well as a lift in consumption credit uptake. But he said this could dissipate because of economic challenges in the country.
“This suggests that retail sales slid by 0.8% quarter-on-quarter and will therefore detract from the second quarter economic growth. This follows a broader theme in the recent high-frequency data outcomes, particularly mining and manufacturing, which we estimate to have shaved a cumulative 0.8 percentage points from GDP growth.”
Investec economist Lara Hodes said: “Retailers have been plagued by longer delivery lead times (as a result of supply side challenges) and electricity disruptions. Overall, however, declining real disposable incomes on high inflation and rising interest rates have negatively affected consumer expenditure.”
The recent BankservAfrica take home pay index (BTPI) showed that consumers’ salaries were not keeping up with increasing inflation. The report showed that in four of the past seven months, nominal wages have seen negative year-on-year growth. Inflation had breached the reserve bank’s upper limit by May at 6.5% and rose to a 13 year high of 7.2% in June.
Increasing fuel and food prices as well as administered prices have put consumers under much pressure as a result of uncertainties in the global economy and the war between Ukraine and Russia. Consumer confidence reached its lowest levels in thirty years among all income groups in the second quarter of 2022 pointing to a slowdown in consumption.
“Reflecting the dismal economic environment and the impact of inflation, the BTPI showed that the average nominal salary has been moderating notably from R15 570 in February to R14 600 in June 2022,” said Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, adding that: “June is the second consecutive month that nominal salaries remained below the R15 000 mark and 1.8% lower compared to a year ago.”
Hodes added that high unemployment and a sluggish labour market as well as rising interest rate hikes will continue to eat into consumers disposable incomes going forward.