Producer inflation comes in better than expected
bdlive.co.za - Feb 24th 2017, 10:55
Food and fuel remain the key drivers of a higher overall PPI — and new taxes and levies could undermine the benevolent effects of an easing drought.
Producer inflation slowed more than expected in January, in possible good news for consumer inflation in coming months.
The producer price index (PPI) for final manufactured goods — considered the headline producer inflation figure — increased 5.9% in January from a year earlier.
That compared with an unrevised 7.1% increased in December.
FNB economists had forecast that January’s PPI is would moderate to 6.9%.
Food products, beverages, and tobacco products were one of the main contributing factors to the January increase, rising 9.5% and accounting for 3.1 percentage points.
Food inflation is expected to start moderating as the severe drought that has gripped the country eases in some areas.
Prices of meat, fish, fruit, vegetables, oils and fats rose 10.3%; dairy prices were up 13.5%. But grain prices and animal feeds rose just 5.4%, which could help bring down prices of downstream food products.
However, another increase in sin taxes announced in by Finance Minister Pravin Gordhan in the budget on Wednesday — affecting alcoholic beverages, tobacco and soon to affect sugary drinks as well — could mean this category maintains its inflationary contribution when those take effect.
Energy and fuel was another of the main factors in January’s producer inflation, with the category "coke, petroleum, chemical, rubber and plastic products" rising 7.4% and contributing 1.6 percentage points of the year-on-year increase.
Fuel prices have fluctuated, as oil prices plummeted and then stabilised, and depending on the fortunes of the volatile rand. The most recent movement in fuel prices was up — 29c a litre for petrol.
An increase in the fuel and Road Accident Fund levies announced in the budget, though, will put upward pressure on fuel prices.
Food and fuel have been big factors in consumer inflation that has remained stubbornly outside the Reserve Bank’s 3%-6% target band. CPI inflation moderated to 6.6% in January, Stats SA said last week, from 6.8% in December.
Compared with a month earlier, producer inflation was up 0.4% in January.
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