PPI slows more than expected

South Africa’s producer price inflation (PPI) slowed more than expected in July on easing commodity prices, hardening the case for a rate cut next month.

Statistics South Africa said on Thursday prices at the factory gate were at 7,7% year-on-year in July compared with 9,4% the previous month, below forecasts of 8,6%.

The month-on-month figure stood at 1,3%, slowing sharply from 4% in June, also beating forecasts of 2,3%.

“Base effects have pushed up the PPI index this year, but these are now beginning to wear out and PPI inflation is likely to cease its relentless upward pace,” said Annabel Bishop, economist at Investec.

PPI is seen slowing even further in coming months as weak domestic demand and a strong rand weighs. Analysts are calling for an interest-rate cut when the monetary policy committee meets on September 8 and 9.

Stats SA said inflation on exported commodities stood at 7,8% year-on-year from 7% previously, while imported commodities inflation slowed sharply to 2% yearly from 3,7% in June.

“Weak global growth and the strength of the rand will contain imported-commodity price inflation going forward.

Price increases for manufactured goods will remain subdued, due to weak domestic and foreign price pressures,” said Carmen Altenkirch, an economist at Nedbank.

“We currently anticipate the Reserve Bank will cut rates in September, due to slowing growth, a strong rand and subdued inflation,” she added.

The PPI data follows figures that showed growth in the second quarter and inflation in July were softer than expected.

The Reserve Bank has left its repo rate steady at a three-decade low of 6,5% at its two previous policy meetings, after a 550 basis points cycle of cuts between December 2008 and March 2010.—Reuters