South Africa’s producer price index (PPI) rose by 5,5% year-on-year (y/y) in January from a 5,1% y/y increase in December, Statistics South Africa (Stats SA) said on Thursday.
The PPI declined by 0,1% on a monthly basis after December’s monthly increase of 0,1%.
The PPI was expected to have risen by 5,8% y/y, according to an I-Net Bridge survey of economists, with the range from 4,5% y/y to 6,2% y/y.
The locally-produced inflation rose to 5,2% y/y in January from 4,6% y/y in December, while imported inflation eased to a 6,4% y/y increase after a 6,5% y/y rise in December and a 31-month peak of 6,8% y/y in September.
The y/y increase in imported crude oil rose to 55,3% y/y in December after it rose to 51,3% y/y in December from 43,9% y/y in November, 53,4% y/y in October and 71,8% y/y in September.
The average annual rate of increase in the PPI for all commodities for South African consumption was 3,1% in 2005 compared with 0,6% in 2004.
The average annual rate of increase for locally produced commodities was 2,9% for 2005 compared with 2,3% in 2004, while that of imported commodities was 3,6% in 2005 and -3,9% in 2004.
Reacting to the data, Annabel Bishop, an economist at Investec, said: “PPI inflation came out below expectations. We believe PPI inflation will come out at a similar rate next month before easing back below 4% by year-end. We still believe interest rates will remain unchanged over 2006.”
Colen Garrow, an econonomist at Brait said the number had been better than the consensus forecast.
“I think the importance of this is that interest rates are going to be trending sideways for longer than anticipated. The movement in inflation, both consumer and producer, is higher, but not alarmingly higher so I think monetary stability is set to continue.
Tebogo Hlabioa, and economist at Metropolitan Asset Managers said it was “definitely” a good number.
“This kind of figure continues to support the view that the next move in interest rates will be down, although it may not be during the first or second quarter.
“Maybe the MPC will decide to wait a bit, but we might see a cut during the second half of the year.”
Michael Keenan, market analyst at Econometrix Treasury Management, said the figure had been softer that what they had expected.
He said it would keep alive hopes of interest rate cuts in the latter half of the year, which would be positive for bonds but negative for the rand “from an interest rate differential perspective”.
Mike Schussler, an economist at T-Sec said: “The PPI was a bit lower than I expected — and it’s good for bonds, probably neutral for the rand and for equities. I see lower numbers for the next few months. It doesn’t affect the prime rate going
forward.”
Magan Mistry, a Nedbank economist said the January figure had been generally in-line with their forecast.
“Inflation is being kept under control by the strong rand, which is cushioning the
higher oil price. We expect interest rates to remain unchanged during 2006.” – I-Net Bridge