/ 28 January 2010

December producer inflation at 0,7%

South Africa’s producer prices increased by 0,7% year-on-year in November, compared with a 1,2% decrease in November, official data showed on Thursday.

Statistics South Africa said on a monthly basis producer inflation, representing domestic output, was at 0,7% compared with 0,8% in November.

Exported commodities inflation stood at -6,1% year-on-year in December compared with -11,9% the month before, while imported commodities inflation was at -3,5% year-on-year from -5,7% previously.

Producer inflation averaged -0,1% in 2009, Stats SA said.

Economists polled by Reuters last week forecast that producer prices had risen by 0,3% year-on-year and by 0,4% on a monthly basis.

Annabel Bishop, an economist at Investec, was quoted as saying by I-Net Bridge that the ascent in the PPI would likely be particularly sharp this year, coming out close to 2% y/y in January and moving to above 6% by the end of 2010, “not least due to higher electricity tariffs”.

“Today’s figure is unlikely to change the SARB’s inflation outlook and hence monetary policy stance. However, an additional interest rate cut would be beneficial (50bp in March), not least to boost confidence, but CPI inflation will run above target in the second half of this year if 35% plus electricity tariffs are imposed, and this is likely curbing the MPC’s hand.”

Carmen Altenkirch, economist at Nedbank, said higher commodity prices, particularly of metals and oil, were the two main factors that caused producer inflation to return for the first time since April 2009.

“Commodity prices have risen by 40% since this time last year, according to an index published by the Economist. However, SA has been partially insulated from this due to the continued strength of the rand.

“Producer inflation is expected to remain relatively subdued during 2010. Weak global and domestic demand for capital goods and industrial materials, due to low levels of investment and construction spending, will contain price increases going forward. Eskom’s proposed 35% tariff increase and a weaker rand, pose the biggest risk to the outlook this year.”

Mike Schussler, an economist at Economists.co.za, said that this was this was the first time in eight months that the PPI had been positive.

“I think it was expected and shows inflationary pressures are slowly coming back. It’s nothing to worry about at this stage, but we can expect increases in the PPI to continue.”

Freddie Mitchel, economist Efficient Group, said South African could not complain about the figure, “as it shows we are still out of negative territory. It shows that there is some demand coming back, and shows interest in international demand”.

Doret Els, economist at Quantum Asset Management, said the PPI’s large exposure to commodity prices and also the fact that it does not
include services makes the gauge more volatile and also more responsive to changes in commodity prices.

“The drop in international oil-, steel- and other commodity prices in comparison to the heights reached in the first half of 2008 contributed to the fall-off in producer prices during 2009.

“The recovery in the international economy, albeit slow in developed countries, is likely to provide support to commodity prices if emerging giants such as China and India sustain their growth and subsequent appetite for commodities. We expect the gauge to continue its positive annual rises in 2010.”