July PPI 'very disappointing'

South Africa’s producer price index (PPI) rose by 10,3% year-on-year (y/y) in July from a 10,4% year-on-year increase in June, Statistics South Africa (Stats SA) data on Thursday showed.

The PPI rose 1,6% on a monthly basis after June’s monthly increase of 2,1%.

The PPI was expected to have increased at a slower 9,6% year-on-year, a survey by I-Net Bridge found. PPI was at 8,2% y/y a year ago.

Forecasts ranged from 9,3% y/y to 10,4% y/y, with 13 of the 15 respondents predicting a dip below the 10% mark.

Stats SA attributed the annual rate in July compared with June to annual decreases in the annual rates of change for basic metals (from 18,4% to 16,4%), products of petroleum and coal (from 15,1% to 9,4%), chemicals and chemical products (from 8,4% to 7,5%), transport equipment (from 5,3% to 4,8%), and medical, precision and optical instruments (4,5% to 2,6%).

However, these decreases were partially counteracted by increases in the annual rate of change for agricultural products (from 20,5% to 22,7%), tobacco products (from 7,8% to 13,4%), mining and quarrying products (from 11,1% to 11,5%), rubber and plastics (from 9,3% to 10,4%) and electricity (from 7,2% to 8,1%).

The annual increase of 10,3% in the PPI for all commodities for South African consumption was due to annual increases in the price indices for locally produced commodities (+eight percentage points) and for imported commodities (+2,3 percentage points), Stats SA noted.

The annual rate of increase in the PPI for locally produced commodities for consumption in South Africa was recorded at 10,6% in July—0,2 of a percentage point lower than the corresponding rate in June.

PPI for imported commodities was reported at 9,2% y/y from 9,4% in June.

The jump into double digits in October last year was the first double-digit increase since December 2002. 

The annual average for PPI in 2006 was 7,7% from the 3,1% recorded in 2005.

PPI was at 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%.

Disappointing

George Glynos, a market analyst at ETM said it was “not a nice number”.

“It’s very disappointing. We had hoped that the number would come in below 10 again. This drives home the point that the Reserve Bank is going to have to be vigilant in its monetary policy and that high interest rates are going to be around for a while.”

Ridle Markus, an economist at Absa said: “It is a huge surprise and is negative for interest rates. Inflationary pressure has become far more broadbased now on the production side and this could eventually spill over to retail inflation, keeping CPIX much higher for a much longer period.”

Dennis Dykes, an economist at Nedbank, also said the numbers were a “little bit disappointing”.

“We were thinking it would come in around 9,9%, so it’s higher than we anticipated.

“After the CPI numbers yesterday [Wednesday], and this morning’s credit numbers, which were not as good as we had expected, collectively they don’t reflect a nice picture.

“However, we must bear in mind that these figures are historical and monetary policy is forward looking. We anticipate that rates will be held steady, but much depends on next month’s numbers.”

Annabel Bishop, an economist at Investec Group Economics said the figure had come out higher than expected.

“The chief drivers of July’s PPI outcome were higher electricity costs, food prices and oil and petroleum product prices. - I-Net Bridge

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