FNB economist Thanda Sithole says the sustained elevated food and petroleum-related product price inflation is a cause for concerns as it poses upside pressure on headline producer inflation. File photo.
FNB economist Thanda Sithole says the sustained elevated food and petroleum-related product price inflation is a cause for concerns as it poses upside pressure on headline producer inflation. File photo.

Producer prices remain at five-year high last month

By Siphelele Dludla Time of article published Jul 30, 2021

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Consumers will continue forking out slightly higher prices for goods as producer prices remained elevated near a five-year high in June.

Data by Statistics South Africa (StatsSA) yesterday showed that annual headline producer price inflation (PPI) for final manufactured goods jumped 7.7 percent in June.

This June producer inflation followed a 7.4 percent rise in May and was slightly above market expectations of a 7.3 percent surge.

StatsSA said this was the biggest annual rise in headline PPI since February 2016 when the rate was 8.1 percent.

A low base effect from last year also weighed in on the PPI reading as producer prices increased by a smaller 0.5 percent in June 2020.

FNB economist Thanda Sithole said producer inflation had increased sharply due to last year’s statistical base effects and higher input costs created by supply-demand imbalances.

The June producer inflation outcome has pushed FNB’s forecast for 2021 to 5.7 percent from 5.3 percent previously.

“We are concerned about the sustained elevated food and petroleum-related product price inflation, posing upside pressure on headline producer inflation,” Sithole said.

StatsSA said coke, petroleum, chemical, rubber and plastic products, chemical products, metal products, food products, beverages and tobacco products and computing equipment were among the largest contributors to the increase.

Food prices were unchanged at 7.3 percent in June.

Petrol and diesel prices eased but remained exceptionally high, up by 32.4 percent and 30.2 percent, respectively, reflecting the impact of elevated global oil prices and a weak rand exchange rate.

Nedbank senior economist Nicky Weimar said producer prices surprised on the upside, rising further in June, while consumer inflation began to soften.

“This outcome reflects the ongoing challenges faced by manufacturers having to absorb the majority of the cost pressures.

“PPI will probably rise further in July as the new utility tariffs kick in, followed by the shortages caused by the unrest.

“After that, prices are expected to soften, although they will remain elevated on the back of high input costs and commodity prices.”

Prices for intermediate manufactured goods increased to their highest level this year at 16.4 percent in June.

The PPI in mining remained above a 20 percent level, highlighting the input costs pressures facing the sector that remains a key raw material supplier to the metals sector.

Seifsa chief economist Chifipa Mhango said the rise in PPI did not bode well for the overall domestic inflation outlook as producers pass on costs to already-strained consumers.

“While PPI could easily translate into increased revenue due to higher prices, in a depressed market it is more likely to lead to smaller sales volumes as financially strained consumers prioritise food and transport over goods such as household appliances,” Mhango said.

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BUSINESS REPORTER ONLINE

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