South Africa’s producer price inflation (PPI) quickened slightly to 16,8% year-on-year in June, from 16,4% in May, below expectations, official data showed on Thursday.
Statistics South Africa said month-on-month PPI, representing domestic output, slowed to 2,6% compared to 4,9% previously.
Economists polled by Reuters last week forecast that annual PPI would increase to 17,4%, while the monthly rate of increase was seen at 3,2%.
Mike Schussler, economist at T-Sec, said the figure was a ”nice surprise”.
”But I still got a feeling that PPI will still go up. The fact of the matter is 16,8% is still quite a big number for PPI and it shows that inflation hasn’t peaked, so my argument is weighted on a rate hike next month.”
Jeff Gable, economist at Absa, said: ”We haven’t seen the breakdown yet, but there are two elements here. The first is that it just shows what a difficult environment we are in when the actual number of 16,8% actually beats the consensus forecast!
”Secondly, the fixed-income market is seeing a small rally, similar to what we saw yesterday [Wednesday] with the CPIX number. That indicates the market is willing to look through what will be a very difficult next couple of months to what looks to be a better inflation outlook next year.”
Annabel Bishop, economist at Investec, said higher electricity prices at the onset of winter had pushed up the PPI while the moderation in rand/oil prices had not been sufficient to provide a counterbalance.
”We expect no more interest rate hikes this year as the SARB estimates that the monetary policy transmission mechanism impacts inflation with a lag of twelve to 24 months, [arguably shorter by some] and we believe under the re-weighting that CPIX inflation will regain target in H2,09.
”The sharp drop in the level of inflation in 2009 is also likely to cause the SARB to cut interest rates significantly in H1,09 next year as the newly weighted [and substantially lower] CPIX inflation series becomes a fact. Demand has also slowed sharply and debt servicing costs have risen to 1999 levels.”
Elize Kruger, economist at Kagiso Securities, said the figure was better than expected.
”Overall, I don’t think it will have a determining impact on the interest rates decision next month, but build on a case for an unchanged stance. I think the Reserve Bank will be looking more at the oil price, the rand exchange rate and the CPIX reweighting in making its decision.”
Danelee van Dyk, an economist at Standard Bank, said the figure confirmed that the country was locked in a ”vicious cycle” of rising prices.
”Even when excluding key raw materials and other input costs, producer inflation has become broader based and may limit the extent to which consumer goods will experience inflation relief.
”This confirms our expectation that the South African Reserve Bank will hike interest rates yet again in August, to limit the spillover effects into inflation expectations, higher wage demands and prices of processed consumer goods. – I-Net Bridge, Reuters