South Africa’s producer price inflation (PPI) slowed to 9,4% year-on-year in August, below forecasts, after a 10,3% increase in July, official data showed on Thursday.
On a monthly basis, PPI increased by 0,7% after a 1,6% rise in July.
Economists polled by Reuters had forecast that annual PPI come in at 9,7%, while the monthly rate of increase was seen at 1%.
Nicky Wiemar, economist at Nedbank, said: ”It’s certainly better than expected. It’s encouraging to see that inflation has slowed down a little bit after the CPIX data yesterday [Wednesday]. Credit extension and household spending are also showing signs of cooling off. If you put all of those factors together, interest rates should remain on hold.”
Razia Khan, the regional head of research for Africa at Standard Chartered Bank, said the figure was a pleasant surprise. ”South African PPI in August rises only 9,4% y/y with a moderate 0,7%m/m rise — much lower than the dramatic monthly rises we have got accustomed to recently, and lower overall than the consensus market expectation of 9,8% y/y.
”However, do note that since the survey period for August PPI, oil prices have risen in the region of almost $10/barrel. This could still exert more pressure on producer prices inflation over the coming months. We also need to factor in the likelihood of further electricity tariff adjustments in the medium term, and other pressures emanating from tight capacity as South Africa undertakes an ambitious infrastructure programme.
”The big picture is that PPI remains close to double digits — although the high base has succeeded — for now at least — in driving it back to single digits.
”The SARB [South African Reserve Bank] cannot afford to be complacent about inflation risks — not as they are forecasting the breach of the target remaining in place potentially for another nine months. The PPI release does not change our view. We still see a 50 bps rate hike in October as being likely.”
Annabel Bishop, an economist at Investec, said the figure was lower than expected.
”The chief drivers of August’s PPI outcome were food prices [at the agricultural and manufacturing level]. We continue to believe the SARB will keep interest rates unchanged at its October MPC meeting as previous monetary tightening and the new credit rules are already slowing consumer spending and credit usage.
”However, CPIX inflation remains well above target, adding to the risk of a further 50bp hike in interest rates this year.” – Reuters, I-Net Bridge