Retail sector shows resilience amid low inflation and increased consumer spending

The South African retail landscape appears to be on a positive trajectory, buoyed by significantly low consumer inflation, the availability of disposable income from Two-Pot retirement withdrawals, and a notable decrease in fuel prices.

Data from Statistics South Africa (Stats SA) on Wednesday showed that the retail sector continued to strengthen in May, with sales increasing by 4.2% year-on-year following an upwardly revised 5.2% advance in April.

Raquel Floris, deputy director for distributive trade statistics at Stats SA, said six of the seven retail groups recorded a positive month, largely driven by textiles, clothing, footwear, and leather goods.

“Textiles and clothing and general dealers continued to shine, with textiles and clothing increasing by 12.5% and general dealers by 3.6% year-on-year,” Floris said. 

“Together, the two groups pushed overall growth higher by 3.7 percentage points. Food and beverages was the only retail group that was weaker in May, shrinking by 1.9% year-on-year.” 

On a seasonally adjusted monthly basis, retail sales rose by 0.1% in May, after an upwardly revised 1.1% increase in April.

Retail trade sales increased by 3.5% in the three months ended May compared with the three months ended May last year. 

Dr Elna Moolman, Standard Bank Group head of South Africa macroeconomic research, said consumer spending remained reasonably robust in May this year as retail sales were 6.3% higher than the same time last year.

When we adjust for inflation, retail sales were 4.2% higher in real terms than the same time last year.

Moolman said there were, of course, a number of factors supporting consumer spending at this stage.

“They are benefiting from lower interest rates, and in May in particular, we had reasonably low inflation with fuel prices down nearly 15% on a year-on-year basis. Our data also implies that there was a spike in Two-Pot retirement withdrawals early in the new fiscal year,” she said.

“We remain quite constructive about the outlook for consumer spending over the coming months, but as inflation is expected to rise in the coming months, we would expect real or volume growth to start to taper off somewhat, and the spike in Two-Pot withdrawals may also subside.” 

According to the latest forecast by the Bureau of Market Research (BMR) at Unisa, South Africa’s retail trade sales are forecast to increase by 7.0% in nominal terms and 2.0% in real terms in 2025.

Drawing on a comprehensive probabilistic macroeconomic model and retail trend analysis, the report signaled cautious optimism for the retail sector, amid easing inflation and interest rates, but warned of structural headwinds including energy instability, water shortages and weak consumer sentiment.

“The 2025 forecast reflects an economy under strain, but not without opportunity,” says Prof Paul Kibuuka, head of the BMR’s economic research division. 

“Our modelling shows that despite constrained household disposable income and tight monetary conditions in 2023 and 2024, the retail sector is on track to benefit from renewed consumer spending, lower inflation, and gradual improvements in infrastructure and governance.”

However, the report cautioned that the recovery was fragile. It warned that persisting risks such as electricity supply shortages, water constraints, global trade uncertainties, and continued high unemployment may blunt household expenditure and investor confidence.

“We cannot ignore the complexity of the challenges South African businesses face,” said Prof Deon Tustin, CEO of the BMR.

“But what the data tells us is that there are strategic openings - particularly for value-driven and digitally agile retailers. Success will belong to those who adapt to changing consumer demands and make smart use of analytics, customer engagement, and omnichannel platforms.”

BUSINESS REPORT