Producer inflation forecast to stay elevated on rising food prices
PRICES of goods at the factory gate are forecast to accelerate to the top end of the target band by the end of the year as the Producer Price Index (PPI) edged up in March after food and beverages rose to a 3-month high.
Data from Statistics South Africa (StatsSA) yesterday showed that the annual producer price inflation inched higher in March, rising to 4.6% from 4.5% in February.
StatsSA said the main contributors to the acceleration in overall PPI inflation were food products, beverages and tobacco products.
Inflation for food, beverages and tobacco products accelerated further to a 3-month high of 4.4% in March from 4.3% in February, with most of the upward pressure coming from elevated fruit and vegetable prices which increased by 13.5% year-on-year.
Grain mill product prices also accelerated by 2.6% from 1.9% in February, reflecting the impact of adverse weather conditions over the past three months.
According to the Agricultural Business Council, upside risks also remain for the “bread and cereal products” in the food basket, owing to “the potentially poor white maize harvest from the recent heatwave and dryness”.
StatsSA said inflation for “coke, petroleum, chemicals, rubber, and plastic products” continued to rise, accelerating to a 5-month high of 4.6% due to higher fuel prices as the price of petrol increased by 5% in March.
By contrast, prices slowed down for non-metallic mineral products; electrical machinery and communication and metering equipment; and transport equipment.
On a monthly basis, producer prices inched up by 1.1% in March, the most in seven months, and after a 0.5% rise in February.
Nedbank economist Johannes (Matimba) Khosa said producer inflation will likely increase moderately in the coming months as base effects reverse, adding that upward pressure will mainly emanate from food and fuel prices.
Khosa said the excessive heat over February and March has damaged the summer crop harvest as the South Africa’s Crop Estimate Committee (CEC) revised its summer maize production estimate to its lowest level in five years.
The CEC also flagged risks of further downward revisions as producers assess the extent of the damage from the drier conditions and lack of rainfall, with forecasts for other grain products such as sunflower seeds, groundnuts, sorghum, and dry beans, being also revised lower.
“These will cause food inflation to bottom out earlier and rise faster than anticipated,” Khosa said.
“Fuel prices are also a worry. Global oil prices will largely be contained by steady global demand and ample supply. Other operational costs will likely stay elevated.
“However, producers will be forced to absorb most of the cost pressures as weak consumer spending will limit the pass-through. We forecast PPI to average around 6% in 2024, with upside risks.”