Financial Mail and Business Day

PPI eases for fifth month running

Andries Mahlangu Market Reporter mahlangua@businesslive.co.za

Producer inflation eased for the fifth month running in December, reflecting mainly a moderation in fuel prices in line with international oil prices.

The producer price index (PPI), which measures changes in the prices of goods bought and sold by manufacturers, rose 13.5% in December year on year, beating the market’s forecast, Stats SA said in a statement on Thursday.

The main contributors to the headline annual producer inflation rate were coke, petroleum, chemical, rubber and plastic products. The product categories incorporate petrol and diesel prices, which are on a downward trend after hitting record highs in 2022.

Other contributors were food products, beverages and tobacco products; and metals, machinery, equipment and computing equipment.

The data suggests receding input-cost pressures for factories in particular. The PPI peaked at 18% in July on an annual basis before coming off. But Brent crude has been steadily picking up in January since China dropped its zero-Covid policy, boosting the demand outlook.

The rand remained relatively volatile against the dollar. The weaker currency increases the cost of imported goods.

Nedbank economists said in a note that producer inflation will probably moderate further in 2023, falling off a high base and reaching single-digit levels in the second quarter. Most of the downward pressure will come from lower commodity prices as global demand slows and supply chains improve.

“However, the outlook still faces some upside risks, including the persistent threat of renewed disruptions in global oil and food markets, given Russia’s war on Ukraine and the sharp increase in extreme weather events,” they said.

“Locally, the main uncertainty is the vulnerable rand and higher manufacturing costs associated with persistent power shortages, forcing powerintensive industries such as mining and manufacturing to rely on diesel generators for power. This could offset the benefit of falling fuel and food prices, keeping producer inflation sticky at just above 6% by the end of the year.”

SA is experiencing its worst power crises with frequent breakdowns at poorly maintained Eskom power plants.

MAIN UNCERTAINTY IS THE VULNERABLE RAND AND HIGHER MANUFACTURING COSTS ASSOCIATED WITH PERSISTENT POWER SHORTAGES

NATIONAL

en-za

2023-01-27T08:00:00.0000000Z

2023-01-27T08:00:00.0000000Z

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