By Nkateko Baloyi & Siphamandla Mkhwanazi
Retail sales surprised to the upside in July, with growth accelerating to 3.4% year-on-year (y/y), up from 1.1% in June (revised from 1.6%), which was well above market expectations of a 1.0% expansion. On a month-on-month (m/m) seasonally-adjusted basis, sales volumes rose to 2.5%, a sharp rebound from -0.8% in June (revised from -0.6%). This suggests consumer spending held up better than expected, echoing the resilience already evident in 2Q26 GDP data, where household consumption rose 0.4% quarter-on-quarter (q/q) even as the broader economy contracted by 0.2%. The stronger retail performance was likely supported by easing living costs in July as petrol prices declined by around R2/litre, while food and non-alcoholic beverages inflation fell to a 16-year low of 0.9% y/y. In addition, maize-meal prices, a staple for many households, declined by 3.1% m/m. Together, these developments would have provided some relief to household budgets, helping to support discretionary spending and retail activity.
Where are consumers increasing spending?
Six of the seven categories recorded positive annual sales growth in July, pointing to a broad-based acceleration in spending momentum. General dealers was the largest contributor growing 3.2% y/y and adding 1.3-percentage points (ppts) to the total, followed by all other retailers (6.8% y/y, 0.8 ppts), clothing and footwear (2.9% y/y, 0.8 ppts), and food and beverages (4.8% y/y, 0.4 ppts). Clothing and footwear recorded the sharpest swing of any of the categories, reversing a 4.1% decline in June, likely benefitting from store promotions. Meanwhile household furniture has now recorded 32 consecutive months of growth, recording 6.6% y/y in July, although it was a step down from 8.7% in June. Hardware material was the sole holdout, still in decline at -1.1% y/y, but a marked an improvement from -4.0% in June. Nevertheless, the sustained declining trend suggests that households are holding out on substantial home improvements.
Outlook
Overall, 1H26 data points to a consumer that remains resilient, but increasingly reliant on income growth among a narrower base of employed individuals. The improved consumption activity in 2Q26 contrasts with weaker labour market data and subdued sentiment indicators, suggesting that this resilience is becoming less broadly distributed across households. Looking ahead, the re-emergence of heightened geopolitical tensions, higher oil prices and the potential of higher borrowing costs domestically suggest that consumer budgets will remain under pressure and encourage more cautious spending behaviour in the months ahead. Nevertheless, household consumption should remain the primary driver of economic growth for the remainder of 2026, although its contribution is likely to be more modest than previously anticipated. Easing inflationary pressures and lower borrowing costs should provide a more supportive backdrop for household spending over the medium term.
