By Siphamandla Mkhwanazi
Retail sales showed a strong performance in July, registering 5.6% y/y, up from a softer 1.7% in June. This marks the 17th consecutive month of positive year-on-year growth and significantly exceeds market expectations of 2.7%. On a month-on-month basis, volumes rebounded to 2.1%, following declines of 0.4% and 0.1% in May and June, respectively. The strength in retail, particularly in non-essential categories, reflects improving household purchasing power and balance sheets, as well as a less restrictive monetary policy.
Performance by type of retail shops
Volume growth was largely broad-based in July, with many categories recording robust sales. The standouts were Clothing and Footwear (+10.0%) and Hardware (+13.2%), each posting double-digit increases. Household Furniture and Appliances (+9.0%) and "All other" retailers (+11.9%) also showed strong gains. General Dealers (+3.3%) - accounting for roughly 44% of total retail trade - had a positive, more modest, rise. The only areas of weakness were the declines in Food and Beverage specialists (-1.4%) and Pharmaceuticals (-0.4%), which likely reflect consumer belt-tightening on certain non-essential or high-frequency purchases. For instance, faced with elevated food and beverage inflation, consumers may be shifting to larger general dealers for grocery shopping or bulk-buying, at the expense of specialty food shops.
Outlook
Stronger balance sheets and purchasing power should support retail sales in the near term. However, if sustained, the weakness in food and beverages may point to underlying pressures in lower-income segments, where inflationary effects are more pronounced. That said, the recently publicly announced, above-inflation multi-year wage deals in various sectors should help mitigate these pressures.
