Cape Town - South Africa’s producer price index (PPI) inflation in June eased to its lowest levels since September 2015, dragged lower by a slowdown in food and fuel prices in the period.
Statistics SA (Stats SA) said on Thursday that PPI inflation moderated to 4 percent year-on-year last month from the 4.8 percent year-on-year recorded in May and below market expectations of 4.4 percent.
On a month-to-month basis, from May 2017 to June 2017 the PPI for final manufactured goods decreased by 0.3 percent in June after it rose 0.5 percent in the previous month.
Diyanna Slabbert, an economist at Investec, said the stronger rand also helped lower the cost of imports of raw materials and intermediate goods used in the local production process, aiding in the lower headline PPI outcome.
“Both PPI and CPI inflation is expected to moderate further in 2017, aided by lower global oil prices, a moderation in food price increases, lower-than anticipated electricity tariffs and a more resilient currency,” Slabbert said.
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Macroeconomics website Trading Economics said producer prices change in South Africa averaged 5.91 percent from 2013 until 2017, reaching a record high of 8.8 percent in April of 2014 and a record low of 2.6 percent in February of 2015.
Stats SA said main contributors to the change in the annual PPI inflation were the food products, beverages and tobacco products group, the coke, petroleum, chemical, rubber and plastic products segment and the wood and paper products group.
While the main contributor to the monthly decrease was coke, petroleum, chemical, rubber and plastic products group, prices in the electricity and water industry increased 6.2 percent to 6.4 percent in May.
The mining industry prices decreased 1.5 percent in June after a 3 percent slide in May, while producer prices decreased 1.4 percent in the farm, forestry and fishing sector.
Intermediate goods prices rose 2.1 percent from the 3.1 percent recorded in the previous month.
Marique Kruger, an economist at the Steel and Engineering Industries Federation of Southern Africa, said South Africa’s hard-pressed manufacturers were on the receiving end of the weak economy as there was little room to pass on cost increases.
“This reflects a fourth consecutive year-on-year decrease, which is indicative of a lack of demand pull factors in the system. The fact is the economy is very weak and there is just not enough room for manufacturers to pass on cost increases into the market,” Kruger said.