Sharp slowdown in producer inflation
Another substantial drop in fuel prices in January translated into a far sharper slowdown in producer inflation than economists had expected for a second consecutive month.
Another substantial drop in fuel prices in January translated into a far sharper slowdown in producer inflation than economists had expected for a second consecutive month.
Farm and factory gate inflation, as measured by the annual change in the producer price index (PPI), decelerated to 4.1% in January from December’s 5.2%. This is the lowest price since March 2018.
After showing inflation of more than 6% year on year since July 2018, the PPI eased to 5.2% year on year in December 2018 as fuel prices tumbled. The economists’ consensus, according to a poll by Trading Economics, was that producer inflation would slow to about 4.9%.
Inflation in January was aided by a R1.22/l drop in petrol and R1.54/l drop in diesel on the continued moderation in global oil prices and a stronger rand.
Petrol fell 3.9% from a year before and 9.1% from December 2018, while diesel rose 2% from January 2018 and fell 10.7% from December 2018.
The food component was up 2.2% on higher prices for grains and starches, which were up 7.4% and 12.9%, respectively. There was, however, a 6.1% decrease in meat prices.
Stats SA’s PPI report on Thursday came a week after it reported that inflation, as measured by the annual change in the consumer price index (CPI), slowed more than expected to 4% in January from 4.5% in December.
The annual change in CPI swings less wildly than in PPI due to a phenomenon known as “price stickiness”. Retailers tend to resist sharp price hikes to keep their customers happy.
The relatively contained inflation outlook and the weak economy will convince the Reserve Bank to keep interest rates unchanged at the next meeting of the monetary policy committee in March, according to analysts.
However, fuel price hikes are forecast for March as a result of the weaker rand and rising oil prices, as well as a 20c/l increase in the fuel levy in April.
“Consumers who are already struggling to make ends meet in our fragile economy will be even more hard-pressed now,” the Automobile Association said.
Petrol is expected to go up by 73c/l while diesel is likely to rise 92c. Despite this, producer prices are forecast to remain relatively contained for most of this year, Nedbank economist Busisiwe Radebe said.