Kevin O'Grady

Economics Editor

GROWTH in retail sales surged in April, as that month’s surprise interest-rate cut sent consumers on a renewed spending spree.

Year-on-year growth of 9,2%, compared with 6,6% in March, suggests the strong contribution made by domestic demand to economic growth is set to continue.

But it also makes another interest-rate cut this year unlikely, as strong demand fuels existing concerns about higher inflation, brought about by soaring oil prices and a weaker rand. At the same time, economists said higher interest rates were also unlikely because robust demand was not yet leading to supply constraints.

April’s growth in retail sales was the highest since the 10,2% recorded in December, at which point economists expected growth in demand to begin to drop off. But that view was confounded by the surprise rate cut and steady growth in consumers’ disposable income.

Consumers’ renewed propensity to spend was evident in the fact that the largest contributor to April’s retail sales growth was the general dealers category, with a 31,5% contribution.

Next biggest was the hardware, paint and glass category (21,9%), reflecting the building and renovation activity in the economy.

Absa economist Nontle Kabanyane said this was already apparent in the number of building plans passed, up from 19,3% year on year in March to 37,9% in April.

Rampant consumer demand was also apparent in soaring growth in demand for credit as interest rates reached a 24-year low, with the indicator rising to an annual 22,9% in May, the fastest pace in more than 15 years. Earlier this week, the National Association of Automobile Manufacturers of SA said vehicle sales rose 31% last month from a year ago.

Efficient Group economist Nico Kelder said the latest figures suggested the dip in demand growth earlier this year was temporary, "a possible result of spending fatigue after December".

At constant 2000 prices, consumers spent a whopping R23,1bn in April, compared with R21,2bn a year earlier. But this was only slightly higher than R23bn in retail sales recorded in March, resulting in 0,7% month-on-month growth.

Standard Bank economist Rashika Lalla said demand should remain supported at its current "boisterous" level by low interest rates, pay increases and tax relief. But inflationary pressure from exchange-rate depreciation and rising global oil prices could provide motivation for the Reserve Bank to increase interest rates, Lalla said.

Absa’s Kabanyane said the effect of the April rate cut was expected to wear off by the third quarter, leading to "a leveling off in household consumption expenditure".