January producer inflation at 2,7%

South Africa’s producer inflation accelerated to a faster-than-expected 2,7% year-on-year in January from 0,7% in December, official data showed on Thursday.

Statistics South Africa said on a monthly basis producer inflation, representing domestic output, was at 1,3% compared with 0,7% in December.

Exported commodities inflation stood at -3,8% year-on-year in January compared with -6,1% the month before, while imported commodities inflation was at 2,6% year-on-year from -3,5% previously.

Economists polled by Reuters last week forecast that producer prices had risen by 1,9% year-on-year and by 0,8% on a monthly basis.

Doret Els, economist at Quantum Asset Management, was quoted as saying by I-Net Bridge that the figure came in much stronger than expected and that the main reason by the acacceleration was commodity prices with both mining products and petroleum products rising at brisk double digit rates.

“In contrast with the deflation we saw in PPI last year, we are set for positive producer inflation in 2010.”

Carmer Altenjirch, economist at Nedbank, said: “Some upward pressure over the month probably came from higher commodity prices as well as food, which usually rises due to seasonal factors in
January. Price increases of other inputs, particularly those used in the construction industry as well as capital equipment likely remained subdued due to weak levels of investment spending, both in SA and abroad.

“Producer inflation is expected to remain modest during 2010. The outlook for commodity prices is generally more benign, following last year’s sharp rebound and will help contain producer inflation.

“Growth in Chinese investment spending is expected to moderate, as the government begins to withdraw stimulus measures and tighten monetary policy, suggesting that China will play a more muted role in supporting commodity prices this year. In addition to this, inventories have continued to expand, suggesting that real demand has yet to recover fully.”

Annabel Bishop, an economist at Investec, said she expected factory gate inflation to continue rising this year in part due to base effects caused by the recession.

“The sharp ascent in PPI inflation this year means it will come out above 3% y/y in February and move to above 7% by the end of 2010, also due to the impact of higher electricity tariffs [24,8% increase for 2010] which will raise the cost of production.

“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], particularly to counter some of the strength of the rand.”

Freddie Mitchell, an economist at Efficient Group:

“The 2,7% increase in PPI is well above what I had anticipated. It shows that the manufacturing sector is out of the woods. That should also boost the mining sector moving forward.” – Reuters, I-Net Bridge

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