August PPI inflation at -4%

South Africa’s producer price inflation stood at -4% year-on-year in August compared with -3,8% in July, Statistics South Africa said on Wednesday.

On a monthly basis PPI, representing domestic output, slowed to 0,3% compared with 2,9% in July.

Imported commodities inflation stood at -17,8% year-on-year in August compared with -17,5% the month before, while exported commodities inflation was at -9,2% year-on-year from -9,3% previously.

Economists polled by Reuters last week forecast that annual PPI fall by 3,5% and rise by 0,8% on a monthly basis.

Mike Schussler, director at Economists.co.za, said the figure was in a range that most people had expected and indicated that PPI was slowing down.

Carmen Altenkirch, a senior economist at Nedbank, said the figure had surprised the market.

“Downward pressure may have come from lower food, petrol as well as prices of goods used in construction. PPI is expected to turn positive towards the end of the year, due to base effects and the gradual pick-up in commodity prices, although this may be muted by the rand’s continued strength. Weak investment spending, both locally and globally, should continue to keep a lid on price increases on goods used in construction.

“As the recovery may disappoint, the Bank could be prompted to cut rates one last time this cycle,” said Altenkirch.

Doret Els, an economist at Quantum Asset Management, said the figure was slightly larger than expected.

“We have seen commodity prices come off since last year and that is reflected in the mining and quarrying costs and the costs of petroleum products.

“Basic iron and steel is declining year-on-year after rising at more than 60% in the first quarter. PPI’s exposure to commodity prices as well as the basis created last year have helped the decrease.

“Also, services are not included and that makes this inflation gauge quicker to respond. PPI reached its peak of 19,1% in August last year.”

Elize Kruger, economist at KADD Capital, said: “Early signs that pricing power is returning to commodity producers were evident in a 3,2% monthly growth rate in the price of basic metals, reflecting the first of ArcelorMittal’s recent steel price increases. Total PPI is expected to remain in deflationary territory for the remainder of 2009.”

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