PRODUCER PRICE INDEX
Inflation Watch: SA factory gate prices reach 5½-year high
Bubbling crude oil prices on the global stage and electricity price increases on the domestic one are the main drivers.
South African producer inflation quickened to 7.8% in September from 7.2% in August, outpacing expectations. This was the highest producer price index (PPI) read since February of 2016 and suggests that despite an ailing economy, inflation pressures are building on some fronts.
The data, unveiled on Thursday by Statistics South Africa (Stats SA), showed that producer prices for coke, petroleum, chemical, rubber & plastic products lead the way, rising by 15.3% year-on-year. Bubbling crude oil prices on the global stage and electricity price increases on the domestic one are the main drivers and this is seen spilling over into consumer inflation, which was a much more muted 5% for the month.
“Producers have been absorbing most of the pressure until now; however, this will shift to consumers in the near term… the latest PPI reading is an indication that we can expect consumer price pressures to intensify over the short term,” Oxford Economics Africa economist Pieter du Preez said in a note on the data. The consensus among economists was for a 7.3% rise, and that was overshot by half a percentage point.
This will not be lost on the Monetary Policy Committee (MPC) of the Reserve Bank, which is scheduled to have its next meeting on interest rates in November. The MPC’s view on inflation is forward looking, with an eye on secondary price pressures, and the potential for an increase is looking increasingly likely. The key repo rate has been held steady all year at 3.5% after being slashed by 300 basis points in 2020 in response to the economic meltdown triggered by the Covid-19 pandemic and the lockdowns to contain it.
Petrol prices were 24% higher in September this year than in the same period last year and rising oil prices globally will also add costs to products that are imported into South Africa for producers and consumers alike.
Still, there are signs that South African inflation is not about to go through the roof. Producer food product inflation moderated in September to 6.7% from 7.1% in August. Ultimately, food inflation bites the poor and working class the hardest, so any moderation on this front in these hard times is welcome.
If food, fuel and electricity costs were stripped from the CPI equation in September, the consumer inflation rate that month was only 3.2%, not 5%, which is no surprise given the weak state of the economy. The central bank’s inflation target is 3% to 6% and there is a lot for the MPC to ponder over next month. DM/BM