Retail sales fall lower than expected

Market forecast was that retail sales would be moderate to 7.5% after reaching 8.23% in December.

"Retail trade sales in real terms increased by 6.4% year-on-year in January 2011. The highest annual growth rate was recorded for retailers in pharmaceutical and medical goods, cosmetics and toiletries followed by retailers in hardware, paint and glass and 'household furniture, appliances and equipment," said Stats SA.

In real terms, retail trade sales for the three months ended January 2011 reflected an increase of 7.7% compared with the three months ended January 2010.

"The weaker than expected retail sales figure reinforce our view that consumer spending trend is still fragile and will not trigger any demand pressure on prices. The general economic recovery is still largely hesitant," said Nedbank economists.

The figures were released as the Reserve Bank's Monetary Policy Committee (MPC) prepares for the two-day meeting on rates next week.

"This will make the MPC reluctant to hike interest rates too quickly and too aggressively in response to mounting upside risk to inflation from surging food and fuel prices. We expect the MPC to keep interest rates unchanged next week and throughout the year before the first hike in the first quarter of 2012," said Nedbank.

The bank said higher petrol and electricity prices, high debt levels, and worries about the prospect of rising interest rates will weigh heavily on the budget of consumers, thereby containing spending growth.

"We therefore expect retail sales to moderate during the year," said Nedbank.