PPI figures 'much higher than expected'

The July producer price index (PPI) figure showed that inflationary pressures were still very much alive, and demanded to be taken seriously, Standard Chartered Bank said on Thursday.

Earlier, Statistics South Africa said that PPI for July 2008 rose to 18,9% year-on-year, compared with June’s 16,8%.

“PPI for July comes in much higher than expected ... although electricity price hikes were widely anticipated, the shock value of this will come as a timely reminder to the market,” said Standard Charter’s Razia Khan.

With pipeline pressures this strong, a quick start to the rate-easing cycle may not necessarily be the done deal that the market had assumed thus far, she added.

“Sure, lower oil prices are the big hope here—that eventually the worst of the pressure will abate—but with PPI already at such a high level, it is a bit of a gamble that the amount of tightening seen so far will be sufficient, and that there will be only moderate pass-through from strong pipeline pressures to consumer inflation.”

Khan added that risks were high and still mostly weighted to the upside.—Sapa