More pressure for another rate hike
Household debt still rises despite warnings
September 22, 2006
By Bloomberg and THABANG MOKOPANELE
Johannesburg - South African consumer spending rose at the fastest pace in 11 years in the second quarter, increasing pressure on the Reserve Bank to raise interest rates.
Household spending rose an annualised 8 percent in the second quarter, up from 7 percent in the previous three months, the central bank said in its Quarterly Bulletin yesterday. Statistics SA said retail sales climbed a record 9.8 percent over the period.
The Reserve Bank has raised its benchmark lending rate twice since June, lifting it to 8 percent, as strong consumer spending, rising oil prices and a weaker rand stoked inflation.
A burgeoning current account gap, fuelled by imports, might cause the rand to extend its losses this year, leading the bank to raise rates again, governor Tito Mboweni said last Thursday.
The central bank said: "Domestic expenditure continued on its robust expansion path, with all the components of final demand registering strong increases."
Household debt as a percentage of disposal income rose to a new record of 69.75 percent in the second quarter, from 68 percent in the first quarter, the bulletin said.
Elna Moolman, an economist at Standard Bank, said the continued strong growth in private sector credit extension was one of the key concerns underpinning the Reserve Bank's tighter monetary policy. In July this sector grew by 24.7 percent year on year.
"In particular, the still strong growth in mortgage advances, which has exceeded 30 percent in each [month] since February, has cast doubt on whether consumers' borrowing has slowed down in the face of the interest rate hikes and another onslaught on their wallets," Moolman said.
She said the aggregate numbers might mask an important underlying trend: corporates' rate of debt accumulation seemed to be picking up at the expense of households.
Annualised growth in real household expenditure on durable goods rose from 13 percent in the first quarter to 15 percent in the second.
Households stepped up expenditure on personal transport equipment, particularly new cars. The Reserve Bank pointed out that the introduction of new models, together with attractive deals, continued to encourage customers to buy motor vehicles.
The growth in spending on durable goods was supported by higher outlays on recreational and entertainment goods. The bank attributed the growth to a strong demand for clothing, household textiles, furnishing, and recreational and entertainment goods.
Moolman said that in the coming quarters there would be notable deceleration in durable and semidurable consumption. But overall consumer spending on services and non-durable items should be steady in the medium term.
Growth in households' real disposable income edged to 7.5 percent in the second quarter from 6 percent in the first. This was a result of tax breaks, government transfers, the creation of additional jobs, and increases in wages and salaries, which exceeded inflation.
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