January PPI slows to 9,2%

South Africa’s producer price inflation slowed to 9,2% year-on-year (y/y) in January from 11% in December, below expectations, official data showed on Thursday.

Statistics South Africa said on a monthly basis the producer price index (PPI), representing domestic output, was -0,7% compared to -1,1% in December. Imported commodities inflation stood at -5% y/y in January compared to +3,4% the month before.

Economists polled last week forecast that annual PPI would decelerate to 9,6% in January and decrease by 0,4% on a monthly basis.

Reacting to the data, Kgotso Radira, an economist at Investec Group, said: ”Today’s outcome is lower than consensus estimates and bodes well for the interest rate outlook. Despite the higher-than-expected CPI [consumer price index] figures released yesterday, the latest PPI figure further supports an early interest rate cut.

”We expect both CPIX [consumer inflation less mortgage costs] and PPI inflation to continue on their downward trajectory as inflationary pressures from the exogenous factors [commodity and food prices] continue to ease.

”Policy makers should be more focussed on the slowing real economy and potential job losses as inflation in general seems to be on the downward path. We expect interest rates to be lower by around 200 basis points — if not more — from current levels by year end.”

Fanie Joubert, an economist at Efficient Group, said of the data: ”It is lower than the consensus. However, it is still above 9%, but at least it’s back to single digits.

”It shows that the trend in inflation on both the consumer and producer side continues to decelerate. The figure is still relatively high and for me it doesn’t justify an emergency rate cut, but one in April would be okay.”

Chris Hart, an economist with Investment Solutions, said: ”9,2% — that’s a good result. I think it reinforces that the inflation pipeline is easing rapidly. It does help stability and an interim meeting of the MPC [Monetary Policy Committee] must now be on the table. We now need to see the credit numbers.”

”The figure is not surprising and well within expectations,” said Christo Luus, an economist at Ecoquant. ”We have seen CPI decline by a similar quantum. What it tells us is that underlying price pressures are easing, which is good news. But at the same time demand is cooling off. Overall the figure is in line with the picture that has been emerging for some time. The trend is in tact to see price increases moderate further.”

Dennis Dykes, an economist at Nedbank, added: ”It’s fairly encouraging. It has moved solidly into single digit territory and shows that the trend is going to be friendly on both the consumer and producer side. It indicates that overall inflation will come down throughout the year.” — I-Net Bridge, Reuters

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