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South Africa’s producer price inflation inches up in...

Business Maverick

BUSINESS MAVERICK

South Africa’s August producer price inflation ticks up after electricity, water and fuel costs surge

(Image: Adobe Stock)

South Africa’s producer price inflation inched up in August to 7.2% year on year from 7.1% in the previous month as administered prices like water and electricity shot up into double digits, along with an uptick in fuel prices, reflecting some of the inflationary pressure the central bank warned of at its last policy meeting.

Producer price growth is a measure of the changes in costs industrial producers incur to manufacture goods – it acts as an early indicator of where consumer prices are going, although in South Africa, producers have in recent years struggled to pass on higher costs to cash-strapped consumers.

Last week the SA Reserve Bank (Sarb), during a policy meeting where it opted to keep benchmark interest rates unchanged, warned that inflationary prices were building, mainly due to global producer price and food price inflation having surprised to the upside. 

The bank also warned that global oil prices and administered prices were offsetting relatively subdued price growth in other parts of the economy. 

The latest PPI print is evidence of those pressures, although they may also be attributed to disruptions due to Covid-19 and the July unrest. 

“Globally, producer inflation has increased sharply due to last year’s statistical base effects and higher input costs created by supply-demand imbalances, including a shortage of raw materials and supply chain disruptions,” said FNB economist, Thanda Sithole, in a note. 

“South Africa’s producer inflation also followed a similar path and even after it peaked at 7.7% in May, it remained sticky. We expect it to remain sticky over the near term and a new peak of 7.8% is likely in November amid tight oil supplies and the subsequent upward revisions to the near-term oil price forecast,” said Sithole. 

Other big movements in prices were in the coke, petroleum, chemical, rubber and plastic products category, with a 13.4% jump in August. Prices of metals and machinery rose 8.2%, slower than the previous month, while food prices increased by 6.1%. 

Consumer inflation in August climbed to 4.9%, a near three-year high, but Sarb expects it to moderate into the end of year, averaging 4.4%, a touch below the midpoint of its target range. BM/DM

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