Producer inflation falls below estimated forecasts

Producer inflation falls below estimated forecasts

FMCG SUPPLIER NEWS

Ethel Hazelhurst - Jun 1st 2012, 10:57

Producer inflation has fallen for six months in a row. Statistics SA released data yesterday on the prices of goods as they leave factories, farms and mines, which showed inflation at the producer level fell to an annual 6.6 percent in April, from 7.2 percent in March and a peak of 10.6 percent in October last year. 

Producer inflation has fallen for six months in a row. Statistics SA released data yesterday on the prices of goods as they leave factories, farms and mines, which showed inflation at the producer level fell to an annual 6.6 percent in April, from 7.2 percent in March and a peak of 10.6 percent in October last year.

The figure was significantly below forecasts. Economists polled by I-Net Bridge forecast 7 percent, while those surveyed by Reuters and Bloomberg predicted 6.9 percent.

The disinflationary trend at the producer level is due to a decline in some very high inflation items.

Though still at elevated levels, electricity inflation subsided from 27.6 percent in March to 21.3 percent; and products of petroleum and coal from 19.1 percent to 12.9 percent. Between them, these items make up nearly 12 percent of the producer price index (PPI) for domestic output.

A few other components of the index also contributed to the better outlook for producer inflation. The prices of basic iron and steel fell 6.1 percent – deflation.

Prices of certain sorts of transport equipment were down 2.7 percent, domestic appliances down 2.6 percent and special purpose machinery down 1.4 percent.

Nedbank’s economic unit said producer inflation would moderate further during the year as “softer global demand contains the rise in prices of certain commodities”.

But it warned: “Upside risks remain due to the possibility of a significantly weaker rand.”

Standard Bank also predicted “a moderate inflation trajectory” this year, “mainly helped by softer commodity prices and weak demand pressures”. And it identified the exchange rate as a risk, along with higher administered prices.

Standard Bank economist Tebogo Mosepele noted that the PPI basket will change next year, which complicates the job of forecasters.