South Africa’s producer price index (PPI) rose by 8,1% year-on-year (y/y) in July from a 7,5% y/y increase in June, Statistics South Africa (Stats SA) said on Thursday.
The PPI rose 1,7% on a monthly basis after June’s monthly rise of 3%. PPI was 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 found, with forecasts ranging 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%.
Mike Schussler, an economist at T-Sec said figure was a “big shock”.
“There is no way we’re going to avoid rate hikes at the next two MPC meetings. This won’t be good for the bond market.”
Colen Garrow, an economist at Brait said: “High. It’s cementing the case increasingly for another rate hike come October.”
George Glynos, a market analyst at ETM said the figure was disappointing.
“I haven’t had time to examine the full breakdown yet, but I suspect that it’s due to a combination of factors. I would suspect that we’ve got a strong uptick in food prices in the domestic component and wouldn’t be surprised to find strong increases in the likes of the steel industry. Higher oil prices and the rand have played a strong role. I believe the market is a bit too optimistic about inflation and should start pricing in the probability of an interest rate increase in both October and December.”
Annabel Bishop, an economist at Investec said: “PPI inflation ratcheted up dramatically in July on the back of significant upward pressure from oil prices (0,8% of the total 1,7% m/m increase), food price pressure (0,4% of the total 1,7% m/m increase) and electricity costs (0,2% y/y of the total 1,7% m/m increase). We believe PPI inflation will continue to rise over the remainder of the year, climbing above 10% by December. The probability of a 50bp October interest rate hike continues to grow, with the financial market already having fully priced it in.” – I-Net Bridge