Another big petrol and diesel price win for South Africa

Headline producer price inflation (PPI) in South Africa continued its steady decline, dropping by 0.7% month-on-month in October and falling to -0.7% year-on-year.

This was much lower than expected, with market consensus expectations of -0.2% year-on-year, following September’s recording of 1.0%.

The big drop in producer inflation can be attributed to further large fuel price cuts implemented during the month, which saw the coke, petroleum, chemical, rubber and plastic products grouping detract a notable -2.5% points from the headline PPI inflation outcome (from -1.2% points previously).

Specifically, petrol and diesel prices decreased by 22.2% year-on-year and 26.9% year-on-year, respectively in October.

However, the good fortune comes with a caveat.

According to Investec economist Lara Hodes, November’s modest lift in fuel prices on rand depreciation will likely weigh on the inflation outcome for this month.

From Wednesday, November 6, 2024, petrol prices increased by a relatively small 25 cents per litre, while wholesale diesel prices rose by around 20 cents per litre.

The prospects for December are also not looking positive, with current fuel price recoveries pointing to a flat petrol price (between a hike of 4 cents per litre and a cut of 7 cents per litre) but a much larger hike on the cards for diesel, which is most used by industry.

Given the oil market dynamics and the weaker rand, diesel prices are looking at a 47 cents per litre hike in December.

Nevertheless, the producer inflation data for October has been positive. Disinflation in the PPI is usually a strong indicator of the inflation trend in CPI, which spells good news for consumers.

Manufactured food price inflation eased back to 3.4% year-on-year after increasing to 4.1% year-on-year in September.

“Accordingly, the food products, beverages and tobacco products category, which makes up a substantial 29.16% of the PPI index, added 1.0% points to the annual topline number, versus 1.1% point previously,” Hodes said.

International food prices declined by 2.1% month-on-month in October at the agriculture level, moderating after September’s 4.8% month-on-month lift.

“These are a key contributor to local food costs as South Africa is a price taker for most agricultural food produced through either import or export, parity pricing,” Hodes said.

A breakdown of the food basket reveals that meat price inflation decreased further, contracting by 1.1% when compared to the same period last year.

Fruit and vegetable prices eased from 12.9% y/y to 9.9% y/y.

This should soften food prices in the country—however, other risks still remain. Analysts have flagged poor crop harvests due to drought as one of the upside risks.

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