S Africans spending merrily ahead of Christmas

JOHANNESBURG, Dec 22 (Reuters) Like many South Africans, Mpumi Nxumalo is shopping 'til she drops ahead of Christmas.

Despite concerns she may be left penniless in January, Nxumalo has steadfastly ignored the Reserve Bank's pleas for South Africans to change their spending habits as runaway consumer spending fuels inflation in Africa's biggest economy.

''There's always a temptation to go over your budget when you see something nice you want to buy for somebody else,'' she said, navigating the busy Southgate shopping mall in the south of Johannesburg with a trolley loaded with bags.

The closest mall to the sprawling black township of Soweto, Southgate was bustling this week with eager shoppers, spurred on by higher incomes and interest rates that are still relatively low despite four hikes since June.

There is little sign these increases have made South Africans heed the central bank's warnings.

Data released over the past few months show South Africans may just be beginning to curb their spending but debt levels remain at record highs, while retailers are still doing a roaring trade.

Retail sales, a key gauge of spending, grew by 8.8 per cent year on year in October from a record high of 13.6 per cent the previous month. Meanwhile, new vehicle sales fell by 4.2 per cent in November but car dealers were still reporting healthy business and looking forward to another year of record sales.

Consumer confidence stood at an optimistic reading of +18 in November -- indicating South Africans are largely shrugging off higher borrowing costs, according to a survey by First National Bank and the Bureau for Economic Research.

'BUMPER SEASON' Economists say there is not much the bank can do to hold back the tide of South African spending given rising income levels since the end of apartheid over a decade ago and a current legal curb on interest charged on credit cards.

Soaring credit has been one of the Reserve Bank's biggest bugbears as it fights inflation -- expected to breach the upper end of the official targeted band of 3-6 per cent early next year.

Bank governor Tito Mboweni earlier this month lashed out at banks' aggressive credit card marketing, calling it ''madness'' and suggesting the bank may have to ''sort out'' their reserve requirements if the rate of credit did not ease.

But economists say the carefree, spendthrift South African is here to stay -- largely as a result of the pervasive ''wealth effect''.

''Most people have been able to absorb the interest rates because real incomes in South Africa have grown, so they have not really felt the pinch,'' said Standard Bank economist Elna Moolman. ''It's really going to be a bumper season for many.'' The ''wealth effect'' in South Africa has also prevailed despite the interest rate rises because they are still low compared to what consumers are used to.

South Africa has raised its key lending rate by a total 200 basis points since June to 9 per cent. Six years ago, the prime lending rate peaked at 25 per cent.

A fast-rising and affluent black middle class is also driving consumer spending in Africa's largest economy -- an effect higher interest rates are unlikely to affect.

Economists are divided on how long the rate tightening cycle will last, and consumers don't seem overly concerned.

''I'm worried about interest rates, because I think there will be more (hikes) next year,'' Nxumalo told Reuters back amid the frenzied shopping at Southgate.

''But for now I just want to enjoy Christmas and hope that I'll still have money in January.'' REUTERS MS RK0932