Producer prices surprise on the downside
PRODUCER inflation slowed more than expected last month compared with a year ago as lower food and intermediate manufactured goods prices eased cost pressures on local producers, Statistics SA (Stats SA) data showed yesterday.
But economists warned that the weak rand, which touched a sevenmonth low of R11.22/$ yesterday on a weaker euro and firmer dollar, could reverse these gains. A weak rand means importers need to pay more for commodities.
Moderating inflation is good news for already pressured consumers as producers will not have to pass higher costs on to them.
The producer price index (PPI) for final manufactured goods moderated more than expected to 7.2% year on year in August from 8% in July. The 7.2% was against a market consensus forecast of 7.6%.
Producers have predominantly absorbed rising electricity and labour costs without fully passing these on to consumers, given weak
The drop in oil prices — and commodity prices in general — will help offset the negative impact of renewed rand weakness
domestic demand and underpressure disposable incomes.
KADD Capital economist Elize Kruger said the 7.2% PPI inflation level might be short-lived and that levels of about 8% could be seen if the rand’s weakness was sustained. “However, the drop in oil prices and commodity prices in general will help offset the negative impact of renewed rand weakness.”
The oil price has dropped from about $113 per barrel in June to about $97 per barrel.
While most economists have flagged the weak local currency as a risk to the outlook for inflation, for now they expect producer inflation to moderate further over the coming months.
Nedbank economist Isaac Matshego said a moderation in global food and energy prices would help ease inflation.
The United Nations Food and Agriculture Organisation’s food price index recorded its fifth consecutive month of decline to average 196.6 points last month — its lowest level since September 2010.
Abundant supplies of wheat and coarse grains have helped to bring down food prices.
Investec chief economist Annabel Bishop said moderating agricultural prices were not feeding through as quickly to the processed level because other high costs, such as labour and administered prices, were significant.
Not all factors, however, are working to similar advantage for producers as global food prices.
Stats SA reported that electricity and water inflation increased 8.6% year on year last month after rising 7.8% in July. This is in line with the Kagiso purchasing managers index’s (PMI) prices subcomponent. The Kagiso PMI is a leading indicator of activity in manufacturing.
The price subindex rose for the third consecutive month to 77.3 last month following a sharp rise in petrol and diesel prices.
Stats SA data also showed that the annual percentage change in the PPI for mining was 3.6% last month compared with 7.8% a month earlier‚ while the index dropped 0.1% month on month.