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The prospect of a November interest rate cut is vanishing, after the bleak picture painted in Malusi Gigaba's medium-term budget.
The prospect of a November interest rate cut is vanishing, after the bleak picture painted in Malusi Gigaba's medium-term budget.

Producer inflation springs an unpleasant surprise


By Tammy Foyn - Oct 26th 2017, 16:17

Producer prices accelerated even faster than expected in September, adding to the growing expectation that the Reserve Bank will not cut interest rates when it meets in November. 

The producer price index (PPI) for final manufactured goods, considered the headline figure, rose 5.2% in September compared with a year earlier, Statistics SA said on Thursday.

That is up from 4.2% in August, and compares with a 5% estimate in a poll by Trading Economics and Investec’s forecast for 4.9%.

Investec economist Kamilla Kaplan said on Thursday: "The deterioration in government debt and deficit projections presented in the medium-term budget policy statement substantially heightens the risk of a credit rating downgrade to sub-investment grade."

"Rand weakness will lift inflation, which eliminates the scope for any further interest rate cuts in the current cycle."

Fuel prices have been a key driver of both producer and consumer inflation in the past couple of months, and Kaplan had earlier flagged fuel prices as the main reason PPI inflation was expected to pick up.

"This component was the largest contributor to headline PPI in August, with petrol and diesel prices having risen by 19c a litre and 44c a litre respectively in August," she wrote, pointing out that these increases were 67c and 44c in September.

Food inflation has been easing, though. The food PPI rose 1.3% year on year in September, and actually declined 0.3% from August to September.

Inflation for meat, fish, fruit, vegetable and oils was in double digits, at 10.2% year on year — but grain prices fell 13.7% from a year earlier. Sugar prices fell 13.8%.

Prices of coal and petroleum products rose 10.9%, with petrol up 10.7% and diesel up 13.5%.

Producer prices were up 0.7% in September compared with August.
© BusinessLIVE MMXVII 

Read more about: sa economy | producer inflation | ppi | inflation |

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