DATA due for release on Wednesday is expected to show consumer inflation having lifted to 6% year on year in January from a prior 5.2%‚ according to Investec economist Kamilla Kaplan.

"In the first quarter as a whole‚ there is a forecast breach of the 3% to 6% target band at an average of 6.1%‚ after which the inflation rate is expected to moderate‚ averaging 5.8% for the year‚" she said in a note.

The first quarter breach could mainly be ascribed to low statistical base factors‚ she added.

"The January CPI (consumer price inflation) data is likely to continue reflecting muted domestic demand conditions‚ particularly for discretionary items. Aside from petrol and food price considerations households’ purchasing power is being eroded by rising interest rates‚ given consumers’ existing high levels of indebtedness (debt to disposable income ratio is presently at 78%).

"Moreover‚ possible further tax and electricity tariff increases are in the pipeline and growth in credit extended to households remains modest. The demand environment restricts the extent to which retailers and service providers are able to pass on price increases‚ if preserving market share is a consideration‚" Mr Kaplan said.

Based on recent trading updates from major retailers‚ the trading environment was assessed as being challenging‚ she said.

"This has been further evidenced in the BER/EY Retail Survey‚ which shows that 60% of retailers are pessimistic and most expect conditions to deteriorate further in the first quarter of 2016."

According to Ms Kaplan‚ the December retail sales update‚ which is also due for release on Wednesday‚ is likely to show that growth remained relatively steady‚ in the region of the 4% year-on-year mark‚ compared to the previous month.

"For 2015 as a whole‚ retail sales growth is likely to yield around 3%‚" she said.

TMG Digital