April PPI eases to 2,9%

South Africa’s producer price index (PPI) rose by 2,9% year-on-year in April from 5,3% year-on-year in March, Statistics South Africa said on Thursday. This is the eighth consecutive decrease in the producer price inflation headline number.

The PPI decreased 0,2% on a monthly basis after March’s monthly increase of 0,1%.

The PPI was expected to have increased at 3,4% year-on-year according to a survey of leading economists by I-Net Bridge, with forecasts ranging from just 2,2% to 4,2% year-on-year. PPI was at 12,4% a year ago.

The drop in PPI could ease pressure on consumer inflation, providing the monetary policy committee of the SA Reserve Bank with sufficient space to cut the repo rate by 100 basis points later on Thursday.

”We were looking for it to come out below the market and it beats even our expectation,” said Gina Schoeman, a senior economist at Macquarie Securities.

”The big positive is agriculture deducted the most from its month-on-month contraction. On a year-on-year basis food at the agricultural level is contracting nicely, but importantly at the manufacturing level — which has been sticky — it went from 9,4% to 8,4%. So in three to four months we could see single digits in the CPI food category.”

Razia Khan, Africa economist for Standard Chartered, said: ”The continued collapse in PPI should help to reinforce expectations that the [South African Reserve Bank] will cut 100 basis points this afternoon.

”However, the worry in all of this remains the stickiness in CPI — which thus far has shown little in the way of a strong disinflation trend.

”With the output gap this large, however, and the [rand] firm, we believe that it will only be a matter of time before the more traditional relationship between PPI and CPI reasserts itself, with CPI then expected to dip below the upper level of the inflation target — albeit only briefly.

”Expect the [Reserve Bank] to cut interest rates by 100 basis points this afternoon, but to follow this with lots of hints that the pace of easing will now slow to only 50 basis points at a time.” — I-Net Bridge, Sapa

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