The Grinch that stole Christmas…?

South African retail sales data for September showed that momentum in the retail industry decelerated faster than expected and sales growth moderated from 4.0% the previous month to 2.7% from a year earlier. Although it will contribute positively to third quarter GDP, it is less than initially expected and is representative of a consumer market that is under strain. The outlook for this sector does not look bright either. Thursday’s surprise interest rate announcement by the Reserve Bank Governor will mean that the consumer has less money to spend over the holiday period. It was the second interest rate hike this year and the benchmark rate was lifted by 0.25% to 6.25%. This means that the prime lending rate is now 9.75%. It was seen as a pre-emptive and “dovish” hike as the Reserve Bank lowered both its future inflation and growth forecasts. Earlier this week, it was thought that the consumer price inflation print for October, which came in at 4.7%, might persuade the Governor to keep rates on hold, but food price concerns due to the on-going drought and the weak currency convinced him otherwise. There was also the risk that if the US Fed hikes rates next month, then the currency would depreciate further if rates were left unchanged.

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