South Africa’s producer price index (PPI) rose by 5,3% year-on-year (y/y) in March from 7,3% y/y in February, Statistics South Africa data showed on Thursday. This is the seventh consecutive decrease in the producer price inflation headline number.
The PPI increased 0,1% on a monthly basis after February’s monthly decrease of -0,3%.
The PPI was expected to have increased at 5,5% y/y according to a survey of leading economists by I-Net Bridge, with forecasts ranging from just 5,2% to 6,3% y/y. PPI was at 11,9% a year ago.
Chris Hart, an economist at Investment Solutions, reacted to the data by saying: “This is a very good number. The inflation picture that is emerging is a lot better than what the CPI [consumer price index] number yesterday suggests.
“The PPI number and the better credit extension numbers will give the South African Reserve Bank [SARB] the confidence to comfortably cut rates by 100 basis points today.
“Although the CPI inflation number is high, the risks around inflation are receding quite significantly. The firmer rand is also helping and that will help support another rate cut in May.”
Annabel Bishop, an economist at Investec, said: “PPI inflation came out lower than expected, but March is a very low survey month. We continue to believe the SARB will cut interest rates by 100 basis points today, and the better-than-expected PPI figure [as agricultural food prices fell once again on the month and on the year] should give them additional ammunition to do so.
“Indications are that the South African economy will remain in recession this year, supported by recent data, including the liquidation statistics and January’s leading indicator. PPI deflation is likely to be recorded from May and we believe there is a growing possibility of a 100 basis point cut in interest rates in either May or June rather than the currently expected 50 basis point easings in those months.”
Economist at Efficient Group Doret Els said: “We were expecting a figure of 5,2 and the figure has come in as 5,3.
“What it shows is that there has been a significant slowdown since February. The slowdown in commodity prices is coming through in the PPI figure. What is also a positive development is that food and alcohol products have also slowed down.”
Colen Garrow, an economist at Brait, said: “It’s a good number. I think it is leading the way for deflation on the PPI side in the next two to three quarters and is also leading the charge for inflation to be pushed into the target zone. It’s good from an interest rate perspective for this afternoon’s decision and for another aggressive move in May. It’s good news for observers of interest rates — rates are on their way down.” — I-Net Bridge