Manufacturing PPI drops more than expected

THE ANNUAL producer price index (PPI) for final manufactured goods fell a lot more than expected to 6.6 percent last month from 7.2percent the previous month, data by Statistics SA showed yesterday.

On a monthly basis, PPI decreased by 0.3percent.

Gerrit van Rooyen, an analyst at NKC African Economics, said yesterday that the deceleration in last month’s PPI was sharper than analysts had predicted and marked the second decline.

He said price pressures in the economy eased last month as petrol prices dropped by roughly 35c a litre and the rand appreciated against the dollar, following a rout at the end of August due to an uptick in political risk.

“However, we still expect both consumer and producer price pressures to intensify during the rest of 2016 as food inflation will remain persistently high heading into 2017, with base effects aggravating the upward trend. Oil prices could also recover, following an agreement between major oil producers to start limiting their daily oil output from December onwards.”

Van Rooyen said additional concern stemmed from the possibility of a depreciating local currency, with the rand vulnerable to a reversal of positive emerging market sentiment should the US Federal Reserve elect to increase interest rates at a faster pace than anticipated, as well as an uptick in domestic political risk. – Wiseman Khuzwayo