The increase in South Africa’s producer price index (PPI) is expected to have risen to 7,5% year-on-year in July, unchanged from the surprise 7,5% increase in June, a survey of 12 economists by I-Net Bridge has found.
Forecasts ranged from 7% y/y to 9,3% y/y, although only four of the 12 economists surveyed expected the increase to be above 7,5%.
Statistics South Africa (Stats SA) will release the data at 11.30am on August 31.
The usual suspects — energy and food prices — plus shortages of productive inputs like steel are expected to be among the main drivers behind the high level of PPI, (which was at just 5,9% in May), but the base effects of higher oil prices in July 2005 are expected to smooth the increase to some extent.
However, the price component of the July Investec PMI and evidence coming from surveys of manufacturing capacity utilisation indicate there are very strong price pressures facing producers.
“Higher agricultural food prices, a stubbornly high oil price, and shortages of key productive inputs such as steel are all expected to result in PPI growth at current levels (7,5%) or even higher for the third quarter of 2006,” say analysts RLJP.
The average for 2005 was a producer inflation rate of 3,1% compared with an average of only 0,6% in 2004, 1,7% in 2003 and 14,2% in 2002.
The 2004 average was the lowest since 1959, when there was no change in producer prices. The lowest annual consumer inflation in the post-1945 period was also in 1959 at 1,1%.
PPI numbers tend to lead the consumer price index, and the central bank will therefore be monitoring Thursday’s release closely after raising interest rates by a total of 100 basis at the June and August Monetary Policy Committee meetings in an attempt to reign in inflation.
There is typically a lag of around nine to 12 months between interest rate adjustments and their full effect on the macro-economy.
“The South African Reserve Bank (SARB) will possibly be watching the PPI numbers even more closely than the CPI numbers, as the former tend to lead the latter. The SARB will want to remain proactive and ahead of the inflation curve, and trends in PPI will be crucial for this,” concluded RLJP. – I-Net Bridge