PPI figures raise hope for lower inflation

The pleasing Producer Price Index (PPI) lowers the trajectory for inflation expectations on the production side and early next year could see single digits, Investec Group Economics said on Thursday.

“We continue to expect no interest rate hikes in 2012, with a cut in the repo likely if the news from Europe or the US deteriorates substantially,” the company’s Annabel Bishop said, commenting on the figures released by Statistics South Africa.

She said PPI inflation’s coming out 10.1% year-on-year in November was lower than the consensus of 10.5%.

“We still ascribe a 60% chance to gross domestic product (GDP) growth of 2.5% next year, PPI inflation of 8.1% year-on-year and no interest rate cut.

“However, our downside scenario of recession, interest rate cuts and substantial currency weakness maintains its probability of 35% due to a lack of any immediate, enforced solution to the sovereign debt crisis and the potential markets could lose patience in this regard, sending risk aversion levels spiralling.”

She said price pressures were muted on the month in total, with the higher prices of petroleum and coal products the key driver.

“Downward price pressure came from the transport, electricity, mining and quarrying categories, as well as the catch all, all other groups.”

Bishop said the lower electricity price outcome was due to lower usage, with the switch from the winter to summer tariff rate already having come through, while softer commodity prices subdued price pressures in mining and quarrying.—Sapa

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