South African producer inflation, which represents domestic output, was slower at 5.4 percent year-on-year in July compared with 6.6 percent in June, Statistics South Africa said on Thursday.
On a month-on-month basis, prices at the factory gate rose by 1.6 percent in July after a 4.4 percent increase in June.
The median consensus among economists polled by Reuters earlier this week was for PPI to slow to 5.2 percent year-on-year and to 1.35 percent month-on-month.
ANALYST COMMENTS
ANISHA ARORA, EMERGING MARKET ANALYST, 4CAST
“Interestingly, exported output PPI plunged to 0.9 percent year-on-year from 3 percent, while imported PPI dipped to 6.6 percent year-on-year but remained fairly elevated still, yet mining and quarrying prices will likely push the month-on-month rate up in August following the spire in platinum prices and other commodities on the back of the industrial strike action.
“Overall, this is another signal for the MPC (monetary policy committee) to step up the easing mode, in line with signals from CPI, where the year-on-year rate now stands at a 14 month low of 4.9 percent.
“This will allow the SARB (South African Reserve Bank) to concentrate further on the risks to GDP growth from the external eurozone crisis and global events.
“Combined, these factors further support the case that the MPC could cut rates further this year and we look for rates at 4.5 percent by 2013.”
SALOMI ODENDAAL, ECONOMIST, CITADEL
“PPI is now below the target band of 6 percent, it just confirms the lack of inflationary pressures in the local economy at present.
“Also if you look at the trend in commodity prices over the past year, most of them are below levels of a year ago, that is also having a positive effect on the PPI.
“The demand in the economy still remains on the moderate side, so there is not much opportunity for people to increase prices, overall we are in a fairly low inflationary environment at the moment.”
ELNA MOOLMAN, ECONOMIST, RENAISSANCE CAPITAL
“The number is only slighlty lower than we anticipated. One should keep in mind these numbers would not yet reflect some of the recent inflation pressures such as rising food and fuel costs.
“So we still expect an upward drift in inflation over the medium term.”
MERINA WILLEMSE, ECONOMIST, EFFICIENT GROUP
“It's obviously much less pressure on factory gate prices, makes sense if you just see what's happening in normal consumer prices as the trend in inflation is definitely downward and at least in the short term it will provide some relief on the interest rate front (through) continued low interest rates and that's a good thing in the current economic climate.”
MARKET REACTION
The rand was little changed at 8.4384 against the dollar at 12:02 SA time from 8.4350 prior to release of the data at 0930 GMT while the yield on the 2015 bond dipped to 5.49 percent from 5.51 percent. The yield on the 2026 paper was at 7.49 percent from 7.5 percent.
BACKGROUND
- Statistics South Africa plans sweeping changes to PPI that will make it a more relevant indicator for consumer prices from 2013. For now, the index is dominated by commodities and tends to move in tandem with those prices, with little pass-through to consumer inflation.
- Headline consumer inflation slowed more than expected to 4.9 percent year-on-year in July from 5.5 percent in June and the Reserve Bank sees it gradually decelerating to 4.9 percent by the second quarter of 2013.
- The central bank unexpectedly cut its benchmark rate by 50 basis points to 5.0 percent last month, the first reduction since November 2010, citing a weaker economic outlook while inflation was seen relatively benign. - Reuters