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PPI in March soars to highest level since 2013 on rising food and energy costs

MANUFACTURED food price inflation jumped to a marked 8.5 percent year on year in March. Picture: Jon Hogg.

MANUFACTURED food price inflation jumped to a marked 8.5 percent year on year in March. Picture: Jon Hogg.

Published Apr 29, 2022


PRODUCER price inflation (PPI) in South Africa for March soared to the highest level since 2013, above market expectations, with upward pressure coming from energy and food-related costs aggravated by the Russia-Ukraine war.

Statistics South Africa said yesterday PPI for final manufactured goods was 11.9 percent, up from 10.5 percent in February.

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Lara Hodes, an Investec economist, said yesterday that the outcome, which was notably above Bloomberg consensus expectations of 10.7 percent year on year (y/y), was underpinned largely by a hike in inflation within the coke, petroleum, chemical, rubber and plastic products grouping, in which fuel price dynamics were captured.

This category had accelerated to 26.8 percent y/y in March from 22.6 percent y/y previously, contributing 6.4 percent points to the headline outcome versus 5.3 percent points in February.

Intermediate manufactured goods rose 18.6 percent y/y, slower than the 19.3 percent y/y in February.

Hodes said manufactured food price inflation jumped to a marked 8.5 percent y/y in March from 6.7 percent y/y previously, with prices exacerbated by the ongoing conflict in Eastern Europe, aggravating global supply challenges.

The food products, beverages and tobacco products’ grouping added a further 2 percent points to the headline reading, from 1.6 percent previously.

Of note, the oils and fats sub-category, soared a whopping 47.7 percent y/y in March from 21.6 percent y/y previously.

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Agricultural Business Chamber of South Africa said earlier this week that the Russian invasion had devastated Ukraine's exports and agricultural activity, thus limiting sunflower oil exports.

“Moreover, Indonesia's decision to ban palm oil exports also introduced uncertainties about the global vegetable oil supplies,” it said.

Walter De Wet, a senior strategy analyst, Nedbank Corporate & Investment Banking, said the rising price pressures on producers in South Africa were consistent with what was being observed elsewhere in the world, with most of the upward pressure coming from energy and food-related costs.

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It was also these costs that is currently being passed on to consumers and as a result, energy and food-related costs were also showing a sizeable contribution in consumer price inflation.

“We expect CPI (consumer price inflation) to peak around the 6.3 percent y/y this year, which does imply that producers are unlikely to pass on the full cost increases to consumers. PPI will remain elevated and upward pressure on input costs should remain in place on the back of high oil prices and a weaker currency. At this point, we expect both PPI and CPI to peak in Q3:22 (quarter three 2022) and slowly grind lower into 2023,” De Wet said.

Chifi Mhango, the chief economist at The Don Consultancy Group, said the “the rising trend in producer price inflation in South Africa to the highest level since 2013 is not surprising considering cost pressures facing the industrial landscape as energy and other main raw materials costs continue to rise globally amid supply chain disruptions.”

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Mhango also pointed to a similar trend globally.

The National Statistics Offices data showed annual PPI in March in countries, such as the US and China, also rising , with high levels of 11.2 percent and 8.3 percent y/y, respectively, while the latest data from euro area indicated a massive record breaking increase to 31.4 percent y/y, indicating the cost pressure caused by Russia's invasion of Ukraine and persistent supply chain disruptions globally.

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