Households battling to shake off the effects of higher inflation and interest rates

By Jason Muscat, FNB Senior Industry Analyst

September Retail Trade sales bounced back to 1.4% y/y after registering no growth in August. The month-on-month rate also recovered 0.6% but growth for the quarter contracted by -0.2% q/q. Despite the improvement on August, general dealers (which make up almost half of all sales) contracted by -0.3% y/y.

Similarly, clothing and footwear retailers fell -1.5% y/y and durable goods sales contracted (-3.8%), largely as a result of significantly tighter lending criteria imposed by the NCR, a trend we expect to persist into the new year. The overall number was lifted by food and beverage retailer sales (10.9%), pharma (6.5), hardware (4.9%) and other retailers (3.4%) which combined, account for 2% of the year-on-year increase.

From the data, it is clear that households are battling to shake off the effects of higher inflation and interest rates, both of which are still being acutely felt. Based on recent media commentary as well as the outcome of the MTBPS, we are increasingly concerned that the tailwind we had expected from steady rates and lower inflation in 2017, could be offset by higher than anticipated tax increases and expenditure cuts.

Nevertheless, GDP results for 3Q16 due early in December should reflect a positive year-on-year number for the sector, lifting overall growth that threatened to contract on poor mining and manufacturing numbers.