More inflation joy for South Africa

 ·25 Jan 2024

A better-than-expected inflation figure for producers spells good news for South African consumers.

Stats SA said that annual producer price inflation (final manufacturing) decreased from 4.6% in November to 4.0% in 2023 – this was below the Bloomberg Consensus of

The producer price index (PPI) decreased by 0.6% month-on-month in December 2023.

PPI measures inflation from the producer’s perspective before it hits consumers, with a decrease in PPI generally good for the CPI – which dropped to 5.1% in December from 5.5% in November.

The most significant contributors to the headline PPI annual inflation rate were:

  • Food products, beverages and tobacco products (increased by 4,6% year-on-year and contributed 1.2 percentage points);

  • metals, machinery, equipment and computing equipment (increased by 6.8% year-on-year and contributed 1.0 percentage point); and

  • transport equipment (increased by 6.7% year-on-year and contributed 0.6 of a percentage point)

Stats SA said that the main contributor to the monthly decrease was the coke, petroleum, chemical, rubber and plastic products category, which dropped by 3,2% month-on-month and contributed -0,9 of a percentage point.

Investec Lara Hodes said that this category made up 22.7% of the PPI basket and dropped from 2.4% year-on-year previously to 0.0% year-on-year.

This was supported by petrol and diesel price cuts of R65c/litre and R2.35/litre, respectively. 

“Additional reductions were implemented in January offering producers’ further reprieve,” Hodes said.

Overall, PPI averaged 6.9% in 2023, far lower than the 14.3% in 2022. Most of the decline was due to the sharp deceleration in food and fuel prices that were heavily impacted by the war between Russia and Ukraine and intense load shedding.

Source: Stats SA


Looking ahead for the rest of the year, the Nedbank Economic Group Unit said that producer inflation is expected to remain subdued in 2024, with the downward pressure mainly emanating from Brent crude oil prices, which is expected to be subdued due to weak global demand and translate into lower fuel prices.

Food prices are also expected to moderate further with the supply shocks in the poultry sector that were caused by the outbreak of avian flu last year start to fade.

“However, there is a risk that some upward pressures on producer inflation could emerge again due to the uncertain outlook for the global oil market, the volatile rand, and higher local input costs,” the Nedbank Economic Group Unit said.

“The El Niño weather pattern is also a concern and could still affect agricultural production and food prices, although there is not much evidence that planting conditions will be affected over this summer.”

“Transnet has been struggling with cargo processing at their ports, resulting in increased backlogs and clogging up domestic supply chains. If this challenge persists or worsens, it could lead to shortages of goods and services, resulting in price spikes.”

Across the whole year, Nedbank’s economists expect PPI to drop from 6.9% in 2023 to 6% in 2024.

Read: Expect a shift for the rand in 2024 – but with a catch

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