OWN CORRESPONDENT, Johannesburg | Thursday
A PICK-UP in the pace of South African producer price rises is likely to have more impact on consumer prices in the months ahead, jeopardising the trend towards lower inflation, says the central bank.
In its bulletin for the third quarter of 2000, the central bank noted that so far the rand’s depreciation this year and steep increases in the cost of imported crude oil which began early in 1999 had hit producer rather than consumer inflation.
But it that changes in the producer price index (PPI) normally preceded a response in the consumer price index (CPI) by two to three months, which meant recent increases in the PPI could still be expected to spill over into the CPI.
”The faster pace of price increases at the production price level is therefore jeopardising the prospect of a steady downward drift in consumer price inflation,” the bank said.
The central bank raised its key repo rate by 25 basis points to 12.00% in mid-October in what it has described as a ”precautionary” measure to defend its three to six percent inflation target for 2002.
Its targeted inflation measure, known as CPIX, which strips out changes in home loans, rose by 8.1% in the year to October.
The central bank noted that on a trade weighted basis, the rand had depreciated by around eight percent between the start of the year and the end of October, fuelling sharp increases in the import component of the PPI index.
The year-on-year rise in imported goods prices rose from 10.7% in December 1999 to 16.2% in April, and was still hovering at 14.2% during October, it said.
”…Some secondary price responses to these increases were apparent in the first three quarters of 2000. However, the effect of the acceleration in production prices, excluding imported crude oil and food, is likely to be seen more fully in consumer prices in the months ahead,” the central bank warned.
However, it noted CPIX inflation had subsided from a seasonally adjusted and annualised rate of 9.2% in the second quarter of 2000 to 7.6% in the third.
During the same period, the headline CPI measure slowed from a quarter-on-quarter rate of 10.9% to 5.7%. – Reuters