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Producer inflation downward trend continues in October

Producer inflation downward trend continues in October

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Producer prices at the factory gate in South Africa have softened to a five-month low, but remained elevated within double-digits as inflation remained sticky in spite of slowing global fuel prices.

Statistics South Africa (StatsSA) yesterday said the annual producer price inflation (PPI) for final manufactured goods eased for the third consecutive month to 16% in October, from 16.3% in September, matching market forecasts.

This was the lowest reading in PPI since May, mainly due to a slowdown in the costs of coke, petroleum, chemical, rubber and plastic products, which softened to 31.8% from a recent peak of 42.8% in July.

The pace of price increase in this category has moderated for the third consecutive month, mainly reflecting the impact of the decline in petrol and diesel prices in line with lower global oil prices.

The petrol price inflation eased to 25.6% year-on-year in October from 31.5% previously on a R1.02 per litre cut in the petrol price during the month.

However, manufactured food price inflation as well as price pressure within the furniture and other manufacturing category also eased.

Prices of food, beverages and tobacco products also made a significant contribution to the print, but the growth rate eased to 11.4% from 12.1%.

Prices in this category remained sticky at elevated levels, lagging the moderation in global food prices recorded in recent months, but a noticeably slowdown in the broader food category is expected in the coming months.

Meat and meat products inflation which makes up a notable portion of the food basket fell to 14.1% in October from a prior 15.1%, bringing down overall food price inflation as did the other food products category which includes sugar.

“Conversely the grain mill products, starches and starch products, and animal feeds category experienced an increase in prices over the year,” said Investec economist Lara Hodes.

“This is in line with the movement of the Food and Agriculture Organisation cereal price index which rose by 3% month-on-month and 11.1% year-on-year in October.”

StatsSA said prices of metals, machinery, equipment and computing equipment also remained elevated in October, rising at a steady rate of 11.6% and improving from the 15.9% increase recorded in May.

Nedbank economist Johannes Khosa said the downward trend on producer inflation was expected to continue in the coming months, in line with the recent easing in global commodity prices.

Khosa noted that the Brent crude oil price has eased from its peaks in March, which will help to reduce local fuel prices, while the pace of increase in prices of other commodities, including food items, has also been moderating gradually.

“We forecast producer inflation to end the year at around 14%,” Khosa said.

“However, this projection faces upside risks, emanating from both global and domestic factors. On the global front, the main concerns are geopolitical shocks and unfavourable weather patterns.

“Locally, the main uncertainty is the vulnerable rand and higher manufacturing cost associated with persistent power shortages, which is forcing power-intensive industries such as mining and manufacturing to rely on diesel generators for power. This will partly offset the benefit of subsiding fuel prices and keep producer inflation at elevated levels.”

On a monthly basis, StatsSA said producer prices were up by 0.4%, after a 0.7% rise in September, and almost in line with market estimates of a 0.45% increase.

BUSINESS REPORT

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