The producer price index (PPI) rose by 1,2% in the 12 months to the end of February from a 1,4% increase for the 12 months to the of end January, Statistics South Africa said on Thursday. On the month, the PPI was up 0,2% compared with January’s 0,5% monthly decline.
According to an I-Net Bridge survey of economists, the February PPI was expected to be the same as January’s 1,4% year-on-year (y/y) increase, with the range from 1,0% y/y to 1,7% y/y.
“This is a very low number, much lower than what we expected. I think this is the bottom of the cycle and from now on PPI will go up. We are getting two different messages out of the economy,” said Dawie Roodt, chief economist at Efficient Group. “From the inflation side, it is very positive for interest rates, but the current account, the oil price and the weakening currency are not good news [for rates].”
John Loos, economist at Absa, had this to say: “We had expected a 1% decline, the figure is worse than expected, but nevertheless a good figure. It supports our view that there are no real threats for CPIX inflation. I suspect the decline has to do with oil prices that decreased in February.”
“However, I expect an increase in PPI inflation in the coming months due to oil prices that have since increased,” Loos added. “I don’t think this figure is significant for the MPC in April because the Reserve Bank is preoccupied by higher consumer demand and oil prices. I still think interest rates will remain unchanged in April.”
“PPI inflation came out below expectations on lower rand oil prices [there is an imprecise lag of one to two months between changes in the oil price and the impact on PPI inflation],” commented Annabel Bishop, an economist at Investec. “We expect PPI inflation will approach 4,0% by year-end on the back of rand weakness and high oil prices. We still forecast that interest rates will remain unchanged over 2005, with a 50 basis-point hike in occurring in February 2006.”
“At 1,2%, the numbers came slightly lower than market consensus — the market was expecting 1,3%,” mentioned Johan Rossouw, chief economist at Vector Securities.
“It is a very good number, and with this it is 22 months that PPI is under 3%. The data should be good for the bond market overall,” said Mike Schussler, an economist at T-Sec. “Even with fuel prices rising, we should not expect CPIX to rise too high. PPI should remain below 3% for the next few months.” — I-Net Bridge