PPI dips below market expectations at 4.2%
STATISTICS South Africa said last week that producer prices increased 4.2 percent year on year in February, the country’s lowest inflation rate since August last year, as prices eased for food, beverages and tobacco.
February’s producer price index (PPI) was a deceleration from a 5.1 percent gain the previous month, and below market expectations of a 5 percent rise.
Annabel Bishop, the chief economist at Investec, said moderate wheat prices should be helpful to the 2018 PPI inflation outcomes later in the year.
“PPI inflation is likely to come out at 3.8 percent yearon-year for 2018 as food price inflation remains suppressed, the rand’s previous strength feeds through somewhat further and base effects from 2017’s drought continue to unwind,” Bishop said. The slowdown in the PPI inflation was also aided by the rand’s strength, which saw a decline in fuel prices in February.
The diesel price fell by 17 cents a litre in February and in March took a 47 cents a litre cut, also as a result of rand strength. However, in April around 60 cents a litre increase will be added on the back of hikes in government taxes and levies announced in the Budget.
Michael Ade, chief economist at the Steel and Engineering Industries Federation of Southern Africa (Seifsa), said the decreasing trend was worrisome as there was not enough leeway for companies to pass on these additional costs – in the form of higher prices – into the market.
The low producer inflation figures came a week after the statistics agency said the consumer price index increased 4percent year on year in February, easing from a 4.4 percent rise in January – the lowest inflation rate since March 2015.
Elize Kruger, an analyst at NKC African Economics, said the average producer inflation was forecast at 4.7 percent in 2018 compared to 4.8 percent in 2017.
“Favourable inflation trends in both consumer and production inflation in combination with the dismal state of the economy, resulted in the SA Reserve Bank cutting the official policy rate by 25 basis points, which should support the economy,” Kruger said.