South African producer prices ease in July on deceleration in fuel costs

FINANCIALLY-constrained consumers will be slightly relieved from paying higher prices for goods as producer prices eased in July, largely on the deceleration in fuel prices.

Data by Statistics South Africa (StatsSA) yesterday showed that the annual headline producer price inflation (PPI) for final manufactured goods was 7.1 percent in July from a year ago.

This July producer inflation print eased from a 7.7 percent rise from a month earlier, and was slightly above market forecasts of 7 percent.

Though producer prices slowed from a 5-year high in June, the July reading was the third biggest annual rise in headline PPI this year, and the third highest since February 2016.

PPI for May and June recorded two consecutive highest jumps of 7.4 and 7.7 percent, respectively.

Nedbank senior economist Nicky Weimar said the decline in PPI was a surprise as the market had expected the double-digit increase of utility tariffs to have a more pronounced effect.

Weimar, however, said they anticipated that PPI would start to moderate in August.

“We still expect PPI to remain contained in the coming months as fuel prices stabilise, while the moderation of the prices-paid component also points to easier producer inflation pressures,” she said.

“The pass-through to consumer prices will be kept moderate by generally subdued domestic demand emanating from pressures on household incomes.”

StatsSA said the PPI moderation was largely underpinned by the abatement in prices within the coke, petroleum, chemical, rubber and plastic products grouping, which decelerated to 11.7 percent in July from 15 percent in June.

Prices also slowed for paper and printed products, food products, beverages and tobacco products.

Meat and meat products’ inflation eased further to 11.5 percent year-on-year from 13.1 percent and 15.1 percent recorded in June and May, respectively.

According to Agbiz, meat prices are likely to soften in the coming months due to a potential increase in domestic meat supplies.

Additionally, inflation within the grain mill products, starches and starch products and animal feeds sub-category fell to 11.4 percent from 14 percent in June, and could continue softening on record global grain production forecasts.

On a monthly basis, StatsSA said producer prices went up 0.7 percent, down slightly from a 0.8 percent increase in June, but above market expectations of a 0.6 percent rise.

Prices for intermediate manufactured goods rose from 16.4 percent in June to 17.6 percent in July, a monthon-month increase of 0.8 percent.

The Steel and Engineering Industries Federation of SA said the increase in PPI boded well for producers in the metals and engineering sector as it provided them with an opportunity to recover from the losses incurred due to Covid-19 lockdown restrictions.