PPI declines further in October
JOHANNESBURG - Annual producer inflation, the producer price index (PPI), in South Africa declined further in October, to a subdued 3 percent own from 4.1 percent in September- falling for the sixth consecutive month.
Statistics SA said on Thursday that the main contributors to the headline PPI annual inflation rate were food products, beverages and tobacco products; as well as
metals, machinery, equipment and computing equipment.
Food products, beverages and tobacco products increased by 3.8 percent in the period under review while metals, machinery, equipment and computing equipment increased by 3. 7 percent.
Statistics SA said that prices rose faster for coke, petroleum, chemical, rubber and plastic products, which rose by 0.7 percent in the period under review.
Lara Hodes, an economist at Investec, commenting on the PPI figure, said it was in line with Investec's forecast. However. this was markedly below its recent peak of 6.5 percent year on year (y/y) recorded in April, she said.
She said the notable moderation in the headline result was chiefly supported by further pricing relief from the coke, petroleum, chemical, rubber and plastic products category, which makes up a sizeable 20.23 percent of the PPI basket.
Futhermore, diminishing manufactured food price inflation had been a key contributor to the softening in headline PPI inflation.
Food price inflation slid to 4.3 percent y/y in October from 4.6 percent y/y in September and the contribution from the food, beverages and tobacco products category, which holds the largest weighting in the PPI Index at 35.26 percent, fell to 1.2 percent from 1.3 percent previously.
She said according to the SA Reserve Bank, rising imported food prices and uncertain domestic weather patterns raised uncertainty about the future price trajectory of the food component, according to the SA Reserve Bank (Sarb).
"This coupled with administered price increases (particularly water, electricity and fuel) and wage growth remain upside risks to the medium-term inflation outcome, which is key to the Sarb’s current inflation targeting process, " Hodes said.
Steel and Engineering Industries Federation of Southern Africa (Seifsa) said the further decline in PPI was challenging to companies operating in the metals and engineering sector, especially amid the prevailing tough economic environment, which seemed to be gradually reducing gains made by businesses over the last few years,
Seifsa economist Marique Kruger said factors affecting supply and a weaker exchange rate increased the costs of imported inputs by companies and continue to be the underlying drivers of volatility in the PPI, which is considered a proxy for selling price inflation.
“Generally, the mounting input costs pressure to businesses is disconcerting, especially given the current challenging economic environment characterised by weak domestic
demand, increasing logistics and energy costs and declining employment numbers.
Resultantly, local companies are compelled to review their individual costs curves in order to stay afloat, and the further dip in selling price inflation starves businesses of an
opportunity to enhance sustainability,” Kruger said.
Moreover, she said manufacturers had increasingly found it difficult to pass cost increases on to the market in order to maintain a positive differential between input costs, inflation and selling price inflation.