Petrol price joy for South Africa

Producer price inflation in South Africa has remained steady thanks to moderating fuel prices.

According to Stats SA, the annual percentage change for headline produce inflation (PPI) remained steady at 4.6% in June.

The outcome was better than Nedbank and the market’s expectations of 4.8%.

PPI measures inflation from the producer’s perspective before it hits consumers, and a decrease in PPI is generally good for the CPI, which dropped to 5.1% in June from 5.2% in May.

Nedbank said that the moderation in fuel prices counterbalanced the upward pressure from ‘machinery and equipment’ and ‘food prices.’

Inflation for food, beverages and tobacco products increased further to 4% from 3.2% and 3.8% in April and May, respectively, as the impact of a high base diminished.

In addition, the upward pressure from ‘meat’ and meat products’ shows that the effects of the 2023 bird flu outbreak are still lingering.

The higher amounts of ‘bakery products’ and ‘starches, starch products and animal feeds’ are also probably due to drier weather conditions earlier this year.

Prices for metals, machinery, and equipment, including computers, also increased from 5.5% to 5.7%, driven by higher prices of ‘structural and fabricated metal products’ and ‘household appliances and office machinery.’

These outweighed the moderation in ‘general and special purpose machinery’ prices.

Nevertheless, disinflation in coke, petroleum, chemicals, rubber, and plastic products countered the acceleration in food and machinery.

“Prices in this category moderated significantly to 6.7% yoy from 7.3%, mainly due to lower fuel prices,” said Nedbank.

“The annual growth rates in petrol and diesel prices decelerated to 5.8% from 8.2% and to 7.9% from 9.2%, respectively.”

“These declines were facilitated by a firmer rand/dollar exchange rate and some moderation in global oil prices.”

That said, the downward pressure in the category was slightly contained by faster increases in the prices of chemical, rubber and plastic products.

Nedbank said that producer inflation will likely remain contained over the coming months.

With the worst of the El Nino period, which brings dry conditions, ending, the upside risks to food prices have moderated.

Lower global inflation will also mitigate the upside risk to local food prices.

Nevertheless, the lagged impact of the extreme heat in 2024, which damaged the summer crop harvest, is set to affect food prices.

In addition, fuel prices and the vulnerable rand remain risks to Nedbank’s outlook.

“While relatively subdued global demand and ample supply will likely keep oil prices in check over the short term, ongoing geopolitical tension, particularly the Israel–Hamas conflicts, still pose upside risks,” said Nedbank.

“The rand remains a worry given its sensitivity to shifts in global risk appetite, which will likely remain volatile until US disinflation gathers compelling downward traction and the Fed starts its rate-cutting cycle.”

“Any relapse in global growth or signs of a hard landing in the US could also trigger another bout of risk-off sentiment.”

“Other operational costs will likely stay elevated. Producers will still be forced to absorb most of the cost pressures as weak consumer spending continues to limit the pass-through.”

With petrol prices coming down in July as well, the figures coming next month should reflect much of the same.

However, the easing of fuel prices has slowed significantly for August, with the latest data from the Central Energy Fund showing only a small cut on the cards of only a few cents per litre.

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