Pretoria | Wednesday
YEAR-ON-YEAR producer price inflation jumped to 13,2% last month from 11,5% in January, Statistics SA reported in Pretoria on Wednesday.
It ascribed this annual percentage change in the producer price index (PPI) for all commodities partly to a 21,4% annual increase in the price indices for food at manufacturing.
Experts expressed surprise at the extent of the latest increase, saying this was bad news for consumers.
”This strengthens our expectation of a further interest rate hike at the June meeting of the (SA Reserve Bank’s) monetary policy committee,” Absa Bank said in a statement.
University of South Africa economist Philip Mohr also predicted another rise in interest rates.
”In my view, this would be a stupid move. But the way they (the Reserve Bank) perceive reality, that is what will happen,” he said.
Mohr said the annual percentage change in the PPI was likely to bring an increase in the consumer inflation rate, although he did not expect this to rise beyond 10%.
Other contributors to February’s overall PPI figure included a 17,3% annual increase in the price indices for radio, television and communication equipment, and a 12,6% rise in the indices for non-metallic mineral products.
Statistics SA said the annual percentage change in the PPI for locally produced commodities stood at 12,2% last month – up from 10,7% in January.
This was partly due to annual increases in the price indices for food at manufacturing, agricultural products, and paper products.
The February PPI figure for imported commodities was 15,6%, compared to 13,8% in January. Contributors included annual increases in the price indices for non-electrical machinery, transport equipment, food at manufacturing and paper products and printing.
Describing the latest PPI figure as a price shock, Mohr said: ”We are now seeing the full impact of the sharp depreciation in the exchange rate of the rand late last year.”
He did not expect a corresponding rise in consumer price inflation. Owing to weak demand and a need to stay competitive, producers and retailers might absorb part of the higher costs.
The reaction of labour would also probably be tempered, Mohr said.
On the wisdom of further interest rate hikes, he said central banks should come to realise that they did not have the power to control inflation.
”Inflation is ultimately determined by factors such as the degree of competition in the goods markets, the state of labour markets, the public finances and exchange rate movements,” Mohr said.
Absa said the 21,4% rise in the year-on-year food manufacturing rate was an important feature of the February PPI figure.
”This suggests food manufacturers are unable to absorb input price increases, and are passing an increasing portion of cost increases on to the retailer,” said the bank.
An additional source of inflation in recent months was higher international oil prices.
”We believe that producer price inflation will continue to rise until the third quarter, where it is expected to peak at around 14%,” Absa said. – Sapa