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Food prices push up producer inflation
Food prices push up producer inflation

Food prices push up producer inflation

ECONOMIC NEWS - Jul 28th 2016, 14:31

PRODUCER inflation accelerated to 6.8% year on year in June, from 6.5% in May. 

The increase in the producer price index (PPI) was faster than economists had expected, with Bloomberg finding a consensus forecast of a 6.7% increase, while Trading Economics put it at 6.38%.

Producer inflation ultimately feeds into consumer inflation, which the Reserve Bank targets for monetary policy.

Food was the biggest contributor to the increase, with producer inflation for food products coming in at 11.2%.

Rising food prices have been a consistent driver of inflation, due to the drought.

Investec chief economist Annabel Bishop noted that grain mill product prices rose 22.4%, and this week’s summer crop estimates showed deep falls for groundnuts (down 53%), dry beans (down 51%), soybeans (down 30%), maize (down 27%) and sorghum (down 27%).

Month on month, producer inflation also accelerated, with the PPI increasing 0.6% in June, after a 0.3% increase in May.

Fuel was the main contributor to the monthly increase, with a 0.6% increase in coke, petroleum, rubber and plastic products.

“June’s diesel price rose by 76c a litre,” Bishop said. “In July a 42c a litre hike occurred but in August around a 70c a litre cut is currently likely, mainly on lower US dollar oil prices, which will have some dampening effect on price pressures in that month. Seasonally cost pressures persist from electricity production."

Although consumer inflation has been running higher than the upper limit of the Bank’s 3%-6% target band — it came in at 6.3% in June — it has been stable, enabling the Bank to stay its hand on interest rates as economic growth sputters.

Last week the Bank lowered its growth forecasts, with no growth expected in 2016, as well as its inflation forecasts. The Bank now expects CPI inflation to average 6.6% in 2016, from an earlier forecast of 6.7%, while the 2017 forecast was revised to 6% from 6.2% and 2018 to 5.5% from 5.2%.From DFM Publishers (Pty) Ltd 

Read more about: south africa | finance | economy

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