21 Aug 2018

Retail sales update: Retail sales growth moderates to 3.1% y/y in January, below market expectations

Annabel Bishop

Chief Economist

Figure 1: Contributions to retail sales by type of retailer
  • Retail sales growth moderated to 3.1% y/y in January 2018, after logging growth of 5.1% y/y in December and 7.9% in November, on the back of a successful Black Friday campaign and usual seasonal trading. The January outcome came in below consensus expectations of 5.9 y/y.
  • This translates into a -1.6% m/m seasonally adjusted drop in January, which is in line with historical trends as retail sales generally dip quite sharply at the beginning of the year as consumer spending is constrained.
  • Looking at a disaggregation of the data notable growth was achieved in the textile, clothing, footwear and leather goods category, which contributed 1.1% to the headline outcome on the back of growth of 6.5% (see figures 1&3).
  • The Q1.18 retail business confidence index improved notably, with confidence amongst retailers lifting 13 points to 42. However 58% of respondents are still unsatisfied with prevailing business conditions (see figure 2). Additionally, retail inflation is still sitting at levels well below CPI of 4.0%, which means that retail margins are still compressed, owing to price competition. The modest retail inflation rate will likely be supported this year by the rand’s strength.
  • However the increase in sentiment should, following the perceived positive political events domestically act as some impetus to consumer spend, especially in the current low inflationary environment. Though recent tax regulations implemented in the 2018 budget, including an increase in VAT, below inflation tax relief on higher categories of personal income tax, sugar tax and the raised fuel levies, to be adopted in April will likely weigh on private consumption. We are therefore expecting modest growth in household consumption expenditure (HCE) for 2018.
Figure 2: Retail Business Confidence
Figure 3: Retail trade sales by type of retailer (at constant prices)