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PPI was expected to increase slightly in August due to a fifth consecutive monthly increase in fuel prices due to the weaker rand.
PPI was expected to increase slightly in August due to a fifth consecutive monthly increase in fuel prices due to the weaker rand.

Producer inflation accelerates in August

ECONOMIC NEWS

By Sunita Menon - Sep 28th 2018, 09:37

Factory and farm gate inflation, as measured by the annual change in the producer price index (PPI), accelerated to 6.3% in August from 6.1% in July. 

Producer inflation was expected to accelerate slightly in August due to a fifth consecutive monthly increase in petrol and diesel prices due to the weaker rand.

While August’s fuel price increases were relatively small at 1c/l and 4c/l for petrol and diesel respectively, they still weighed on producer inflation.

This translated into diesel’s contribution to PPI showing 27.7% annual inflation in August while the petrol component of PPI showed 25.3% annual inflation.

Transport equipment, which increased by 10.9% in August, also drove up producer inflation.

PPI, which was set to 100 points in December 2016, came in at 109.2 points in August, up from July’s 108.5 points.

From July 2018 to August 2018 the PPI for final manufactured goods increased by 0.6%.

FNB chief economist Mamello Matikinca expected the index to have increased slightly due to the 27c/l fuel price increase in the two preceding months.

However, Investec expected PPI to moderate to 5.9%.

“Although imported price pressures, from the weaker domestic currency, continue to weigh on manufacturers’ margins, August’s fuel price reprieve, together with still muted food price inflation, should bring some relief to the PPI basket,” said Investec economist Lara Hodes.

Producer inflation has traditionally been seen as giving an indication of the consumer inflation figure three months later. The annual change in the consumer price index (CPI) is the key measure of inflation used by the Reserve Bank to set interest rates.

But given the speed of modern logistics, producer inflation increasingly moves in tandem with consumer inflation.

Last week, data from Stats SA showed that consumer inflation had surprised to the downside in August, slowing to 4.9% from the previous month’s 5.1%.

The monetary policy committee at their recent meeting kept the repo rate unchanged.

Business Live 

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