South Africa’s producer price inflation (PPI) rose by 9,2% year-on-year (y/y) in August from an 8,1% y/y increase in July, Statistics South Africa (Stats SA) said on Thursday.
The PPI rose 1,5% on a monthly basis after July’s monthly rise of 1,7%.
Stats SA data showed the main pressure came from agricultural products, base metals and electrical machinery and apparatus.
Dawie Roodt, chief economist at Efficient Group, said: “It’s worse than what we expected, but I’m not really surprised. Bonds will probably react negatively. But PPI is more volatile than CPI as it’s a smaller basket.
“It won’t be that important for the rand. I can see a hike of at least 100 basis points in the rate cycle, maybe even 150 points.”
George Glynos, market analyst at ETM, said: “It’s a bit of a shocker, although we were well above it in our expectations. Nevertheless, it’s a disappointing figure overall and reinforces the view that South Africa is far from out of the woods.
“It also cements the case for another two rate hikes this year and, given that it’s mainly in the domestic component, it does not bode well for inflation.”
“PPI inflation came well above expectations in August,” said Annabel Bishop, economist at Investec. “The upward price pressure was fairly broadly based, with oil prices accounting for 0,3% of the total 1,5% month-on-month [m/m] increase, food price pressure 0,3% [of the total 1,5% m/m increase] and electricity costs [0,1% of the total m/m increase], and rising costs of machinery, equipment and basic metals accounting for the remainder.
“We believe PPI inflation will continue to rise over the remainder of the year, climbing above 10% by December, and that the South African Reserve Bank will hike interest rates by 50bp at its October meeting.” — I-Net Bridge