Consumers should brace for higher prices on the shelves this festive season as the producer price inflation (PPI) quickened further to a four-month high in September and above market forecasts.
The PPI is a good pre-indicator of consumer inflation because it measures the costs to produce consumer goods, and when producers are faced with input inflation, those rising costs are passed along to the retailers and eventually to the consumer.
Data from Statistics South Africa (Stats SA) yesterday showed that the annual headline PPI accelerated for a second consecutive month, rising to 5.1% in September, from 4.3% in August and 2.7% in July.
Stats SA said the main contributors to the headline PPI annual inflation rate were food products, beverages and tobacco products; metals, machinery, equipment and computing equipment; paper and printed products; and transport equipment.
Food products, beverages and tobacco products increased by 4.4% year-on-year.
A breakdown of the food basket indicates that meat and meat products inflation increased to 1.8%, from 0.2% recorded in August, while prices of grain mill products, starches and starch products, and animal feeds declined to 2.9% from 3.9% previously.
Price pressures within the metals, machinery, equipment and computing equipment sector, and the paper and printed products category eased somewhat in September but remained elevated at 6.5% and 11.8%.
Transport equipment also increased by 7.8% year-on-year as inflation within the coke, petroleum, chemical, rubber and plastic products grouping rose by 1.6% after declining for three consecutive months.
Investec economist Lara Hodes said a lift in the global oil price, combined with a depreciation of the rand, saw fuel prices lift notably in September, with a further marked hike implemented in October, which would add additional upside pressure.
However, Hodes said South Africa had benefited from the deceleration in global food commodity prices, with the Food and Agriculture Organisation of the UN’s (FAO) food price index down by 10.7% in September when compared to the same period in 2022.
“Moreover, South Africa has a promising agricultural season, according to Agbiz with the 2022/23 maize harvest projected at 16.4 million. This is 6% higher than the 2021/22 season’s harvest and the second-largest harvest on record,” Hodes said.
“Despite this, a number of upside risks remain, including challenges relating to the Black Sea Grain Deal and India's rice exports ban, the avian flu outbreak and heightened weather disturbances, notably from El Niño.”
On a monthly basis, producer prices rose by 1.5% in September, the most in more than a year, after a 1% increase in the prior month and also surpassing market estimates of 1.1%.
During the month, prices were lifted mainly by higher fuel prices, with diesel and petrol prices rising by 14% and 8.3%, respectively, due to a combination of higher global oil prices and a weaker rand.
Nedbank economist Johannes Khosa said the producer inflation was likely to continue rising gradually in the coming months, ending the year at around 6%.
Nedbank is forecasting PPI to average 7.2% in 2023, down from 14.3% in 2022.
Khosa said the upward pressure would continue to come from higher local input costs, including electricity tariffs and the expense of sourcing alternative power as load shedding persists.
He also cited the potential disruptions to oil production and supply lines in the Middle East as a result of the conflict between Israel and Palestine, and the weak rand as other risk factors to producer prices.
“The price of Brent crude oil has been rising for the past three months after leading producers, Saudi Arabia and Russia, committed to cutting production until the end of the year,” Khosa said.
“The El Niño weather pattern also poses upside risks for agricultural production and food prices. Unfortunately, weaker domestic demand will limit the rate at which firms can pass costs on to consumers.”