De­cem­ber’s PPI was higher than ex­pected

The Star Early Edition - - BUSINESS REPORT - Wise­man Khuzwayo

AN­NUAL head­line pro­ducer price in­fla­tion (PPI) quick­ened to 7.1 per­cent in De­cem­ber from 6.9 in Novem­ber, higher than the mar­ket ex­pec­ta­tion of 6.9 per­cent.

How­ever, Ned­bank said both pro­ducer and con­sumer in­fla­tion were fore­cast to slow this year, which should give the Re­serve Bank some room to pause its rate hik­ing cy­cle.

“The big­gest threat to the in­fla­tion out­look, though, re­mains the rand.

“Should the cur­rency hold up as it has in the first few days of 2017, and bar­ring any ex­cite­ment from other do­mes­tic and ex­ter­nal shocks, in­ter­est rates are likely to have peaked with grad­ual de­clines start­ing in the sec­ond half of the year and into 2018,” the bank said.

The PPI for fi­nal man­u­fac­tured goods in­creased by 0.5 per­cent month-on-month in De­cem­ber, com­pared to the 0.4 per­cent month-on-month rise in the pre­vi­ous month.

On a monthly ba­sis, pro­ducer prices rose by 0.5 per­cent as con­tri­bu­tions of 0.1 per­cent­age points by the food prod­ucts, bev­er­ages and tobacco prod­ucts cat­e­gory as well as 0.2 per­cent­age points by each non-metal­lic min­eral prod­ucts.

El­ize Kruger, an an­a­lyst at NKC African Eco­nom­ics, fore­cast that both price in­di­ca­tors were close to their re­spec­tive peaks due to the base ef­fects, with “prices pushed con­sid­er­ably higher in the early months of 2016 due to food price hikes”. Kruger ex­pected price pres­sures to ease over the course of this year, be­cause of a stronger rand com­pared to last year, lower food prices as good rains al­le­vi­ated the cur­rent drought con­di­tions, and weak lo­cal de­mand con­di­tions.

“As a re­sult, we ex­pect that the Re­serve Bank will keep the repo rate un­changed at 7 per­cent through­out 2017.

“How­ever, some risks re­main, par­tic­u­larly re­lat­ing to in­ter­na­tional oil prices, higher food prices for longer than en­vis­aged and the ever-present risk that the re­cent strength­en­ing trend in the rand ex­change could re­verse and that the cur­rency could be­come a sig­nif­i­cant driver of in­fla­tion again,” she said.

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