The Producer Price Index (PPI) inflation moderated from 5.2 percent year-on-year in March to 4.6 percent in April, down from a peak of 8.1 percent in February, 2016.This was the weakest PPI inflation since November, 2015 when prices went up 4.3 percent.
Food price inflation at the agriculture-level contracted for the fourth consecutive month, by 3.4 percent on a yearly basis against 6.1 percent in March. This was largely due to grain prices having contracted by 31.2 percent.
Investec chief economist Annabel Bishop said the key driver behind the moderation in PPI inflation continued to be food price dynamics, with this category comprising the largest portion of PPI at 25.17 percent.
“In terms of other considerations for producer prices, commodity prices in rand terms, at an aggregate level have moderated. Specifically, the continuous commodity price index that comprises energy, agriculture, soft commodities and metals, is presently down 17.7 percent year-on-year,” Bishop said.
She expected both the PPI and CPI inflation to continue to moderate in 2017.
The price index for electricity and water rose 5.9 percent on a yearly basis in April and those of intermediate manufactured goods went up by 5 percent. The price index for agriculture, forestry and fishing registered a decrease of 1.6 percent.
Read also: Inflation drop may mean cheaper interest
Ian Cruickshanks, chief economist at the SA Institute of Race Relations, said the lower price of maize had helped the PPI to moderate.
“The biggest factor behind the easing of the PPI was the declining food prices that are driven largely by low maize prices and the decline in fuel prices,” Cruickshanks said.
Meanwhile, the rand on Thursday maintained its previous session gains against the dollar as markets play out the final phases of May.
Against the dollar, the local unit was 2.85 percent higher on the month, while it had strengthened 3.17 percent against the pound and 0.41 percent against the euro.
The rand had breached the R13 barrier on Wednesday hitting a four week high on the back of better than anticipated inflation numbers, with inflation dipping below the 3 to 6 percent target range of the SA Reserve Bank for the first time in nine months.
Allet Opperman, an analyst at TreasuryOn, cautioned against placing too much emphasis on the rand strength on media reports that President Jacob Zuma would face a motion of no confidence during this weekend’s ANC national executive committee meeting.
“Wednesday’s inflation figure was the second better-than-expected number in a row. Besides the local interest rate decision, markets will focus on the weaker dollar play. The rand should continue to strengthen,” Opperman said.