South Africa’s PPI remains on downward trajectory

JOHANNESBURG – Consumers will heave a brief sigh of relief as the producer price inflation (PPI) for final manufactured goods slid for the fifth consecutive month as it continued on its downward trajectory in September, falling to 4.1 percent year-on-year from 4.5 percent in August, and below the consensus of 4.3 percent.

Higher producer prices mean consumers will pay more at the tills, whereas lower producer prices likely mean consumers will pay less at the retail level.

Statistics South Africa said yesterday that the PPI for intermediate manufactured goods slowed from 1.9 percent in August to 0.5 percent in September. 

The main contributors to the headline PPI annual inflation rate were food products, beverages and tobacco products, which increased by 4 percent year-on-year and contributed 1.3 percentage points to the print.

A slide in meat and meat products inflation from a marginal 0.1 percent year-on-year in August into deflationary territory of -0.2 percent in September, together with a moderation in some of the other major food groupings, including grain mill products and starches, underpinned the lower reading.

Investec economist Lara Hodes said that the consumers were not likely to suffer the brunt of high prices.

“The CPI inflation in South Africa has settled below 4.5 percent year on year this year, and is not expected to exceed the inflation target over the next two years either, reducing the South African Reserve Bank’s need for heightened vigilance over inflation and removing the likelihood of any interest rate hikes,” Hodes said.

“Furthermore, while producers are experiencing accelerating average production costs, the extent to which these costs have been passed on further along the supply chain has been hindered by a lacklustre demand environment.”

Metals, machinery, equipment and computing equipment also increased by 4.5 percent year-on-year.

The headline result was supported by additional pricing relief from the coke, petroleum, chemical, rubber and plastic products category as well as a further moderation in food price inflation.

Inflation within the coke, petroleum, chemical, rubber and plastic products segment, which occupies the second largest weighting in the PPI basket at 20.2 percent, slid to 2.8 percent year-on-year in September, from 3.3 percent in August.

However, high statistical base effects stemming from the increases in the petrol price through most of 2018 is expected to suppress the year-on-year growth in the fuel component through much of the second half of this year. 

Marique Kruger, an economist at the Steel and Engineering Industries Federation of Southern Africa, said the slowdown in the PPI for intermediate manufactured goods was not good news for  beleaguered businesses in the metals and engineering cluster of industries, especially when viewed against the backdrop of increased volatility in imported input prices as a result of a generally weak exchange rate. 

Kruger said that the situation was exacerbated by increasing energy and fuel prices and a volatile exchange rate, which all add to the individual cost curves of businesses.

“The disappointing slowdown in the PPI for intermediate manufactured goods prevents  businesses from leveraging on the improvements in trading opportunities,” Kruger said.

“Business conditions have generally been tough, and manufacturers are finding it increasingly difficult to move stock out of the warehouses amid low levels of domestic demand and higher intermediate input costs.”


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