Producer price data delivers some good news for inflation
South Africa’s latest producer price inflation (PPI) figures for April 2023 significantly decelerated from 10.6% in March to 8.6%.
According to Nedbank’s latest Producer Inflation report, the decline beat the market’s forecasts of 9.5%.
Statistics South Africa published the most recent figures on Thursday (25 May), illustrating that the main contributors to the headline PPI annual inflation decrease was the ‘coke, petroleum, chemicals, rubber, and plastic products’ category’.
PPI for intermediate manufactured goods fell to 4.6% after remaining unchanged at 5% in February and March, pulled down by declines in prices of ‘chemicals, rubber, and plastic products’ and ‘basic iron and steel’.
PPI for mining fell sharply to 10.5% from 17.1% due to a decline in ‘non-ferrous metal ores’ and a sharp reduction in ‘coal and gas’ prices, which offset the impact of a jump in the costs of ‘stone quarrying, clay and diamonds’.
PPI for agriculture, forestry and fishing dropped to 6% from 7.5%, mainly reflecting lower prices of ‘cereals and other crops’, which overshadowed the impact of elevated prices of ‘fruit and vegetables and ‘milk and eggs’.
PPI for electricity and water rose to 13.1% from 10.1% as prices of both electricity (14.1% from 10.8%) and water (8.1% from 7.2%) increased
Summarily, this decrease could lead to consumer inflation tipping downwards, especially in food and fuel.
In April 2023, Statistics South Africa (Stats SA) published the Consumer Price Index (CPI), indicating a decrease of 6.8%.
Despite it being marginal, it exceeded market predictions and can be attributed to lower fuel inflation, leading to a positive impact on transportation costs.
“The rapid deceleration in producer inflation will help to limit the passthrough to consumer inflation. We expect producer prices to moderate even further in the coming months, supported by last year’s higher base and lower international commodity prices,” said Nedbank.
“This will contain prices of petroleum products, which include diesel and petrol. Food prices are also expected to start easing as the lagged effect of lower global food prices filter through the economy, while favourable weather earlier this year will support local food supplies.”
The Nedbank did note, however, that there is a risk that inflation could recede at a slower-than-anticipated pace as the benefits of lower global prices will be partly mitigated by the weaker rand.
The local currency would remain under pressure as global risk appetite seesaw amid the global economic downturn and investors remain wary of South Africa, with the electricity shortage eroding domestic growth prospects, diplomatic tensions simmering on the looming BRICS Summit, and political rhetoric likely hardening ahead next year’s elections, said Nedbank.
Nedbank added that at the same time, load-shedding would continue to drive up local input costs, forcing companies to use diesel generators to produce electricity or undertake the expense of installing alternative electricity sources.
The graph below shows the year-on-year rate of change for PPI:
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