Producer prices in South Africa are expected to continue decelerating in the second half of the year after the annual headline Producer Price Inflation (PPI) for final manufactured goods fell to its lowest in 18 months in April.
This could signal that relief on the tills is on the way as producers may halt their pass-through after the consumer price inflation also fell to its lowest in 11 months in April.
Data from Statistics South Africa (StatsSA) yesterday revealed that the annual headline producer price inflation slowed for a ninth consecutive month, slipping into single-digit territory.
StatsSA said the PPI dropped from 10.6% in March to 8.6% in April, and less than market expectations of 9.5%, marking the lowest reading since October 2021.
This April’s PPI reading was driven by the further slowdown in costs for most manufactured goods, particularly for coke, petroleum, chemical, rubber, and plastic products, transport equipment and metals, machinery, equipment and computing equipment.
StatsSA said most major categories moderated further, amplified by the higher base established last year.
The ‘coke, petroleum, chemicals, rubber, and plastic products’ category remained the main driver of the downward trend, falling sharply to 6% in April from 12.9% in March.
This was mainly because fuel price dynamics fell by 0.4% in April, from an increase of 0.5% in March, supported by the drop in the diesel price at the beginning of April.
Transport equipment inflation also turned the corner in April, easing to a still high 13.8% from a peak of 14.5% in March, dragged down by slower increases in vehicle parts prices, which contained the impact of steeper increases in vehicle prices.
StatsSA said manufactured food price inflation decelerated further in April to 11.1%, from an elevated 11.7% and 13.7% recorded in March and February respectively.
The prices of oils and fats recorded their first annual contraction since April 2017, falling by 8.9%, while price increases in meat and meat products, grain mill products, starches and animal feeds also moderated further.
According to Agbiz, this notable “moderation in the "oils and fats" products” was in line with what is being seen in the global environment, as South Africa still imports its palm oil usage.
Nedbank economist Johannes Khosa said the rapid deceleration in producer inflation would help to limit the pass-through to consumer inflation.
Khosa said food prices were also expected to start easing as the lagged effect of lower global food prices filtered through the economy, while favourable weather earlier this year would support local food supplies.
“We expect producer prices to moderate even further in the coming months, supported by last year’s higher base and lower international commodity prices,” Khosa said.
“However, there is a risk that inflation could recede at a slower-than-anticipated pace as the benefits of lower global prices will be partly mitigated by the weaker rand.
“At the same time, load shedding will continue to drive up local input costs, forcing companies to use diesel generators to produce electricity or undertake the expense of installing alternative electricity sources.”