Rebound in selling price inflation data is encouraging
CAPE TOWN – The Steel and Engineering Industries Federation of Southern Africa (Seifsa) welcomed the latest Producers Price Index (PPI) data, which showed an uptick in selling prices for primarily intermediate goods of the metals and engineering (M&E) sector.
The data, released by Statistics South Africa on Thursday, showed a rebound in the PPI for intermediate manufactured goods from -1.5 percent in December 2019 to 0.7 percent in January 2020.
The increase is consistent with the annual change in the PPI for final manufactured goods, which increased to 4.6 percent in January 2020, from 3.4 percent in December 2019.
The good news was that South Africa’s 2019/20 summer grains production could increase by 26 percent year on year to 16.8 million tons … (which would) be the second-largest summer grains harvest on record after the 2016/17 crop, according to grain SA.
Investec chief economist Annabel Bishop said in a note that an improvement in the summer crop harvest would bode well … for food price inflation for the year as it would serve to exert a moderating effect on food price inflation. Food price inflation has lifted to 3.7 percent year on year in January, from 3.1 percent in November, as it started to trend up.
“PPI inflation at close to 4.5 percent year on year will assist in stabilising CPI inflation – currently at 4.5 percent. Lower food price inflation could come through this year, and oil prices have moderated on the impact of Covid-19 on commodities, exerting downwards pressure on fuel prices, although it is uncertain how long this will last,” she said.
Speaking after the release of the data, Economist Marique Kruger said that given the volatile historical trend of the PPI owing to factors affecting supply, the latest manufactured goods data was encouraging.
“Producers prefer stability in the data which enables forward planning in a difficult business climate, underpinned by difficulty in passing on price increases onto the market. Moreover, the volatility in selling prices compels manufacturers to absorb unusual spikes in input and material prices in order to stabilise selling prices and keep loyal clientele,” she said.
Kruger said generally, the latest data was good for businesses which were provided with an opportunity to perk-up margins and leverage cost-push inflation, also enabling their sustainability.
This, she said, would provide impetus for growth in the M&E sector, as well as the broader manufacturing industry and the economy.