Commodities drive producer inflation

30 July 2010

The Producer Price Index (PPI) rose to 9.4% in June, 2.6 percentage points higher than the 6.8% recorded in May, according to Statistics South Africa (Stats SA).

Some experts had predicted that PPI, which is the cost of goods leaving factory gates and mines, would come in at 7.7% year-on-year in June.

Statistics South Africa (Stats SA) said on Thursday the increase could be explained by increases in the annual rate of change in price indices for agriculture, mining and quarrying as well as food and manufacturing.

Seasonal price increases

Nedbank economist Carmen Altenkirch said the sharp increase in the PPI was mainly due to a seasonal increase in the price of electricity.

“Although PPI is expected to continue to rise over the coming months, it has no immediate implications for our positive consumer inflation outlook, as it is being driven by commodity inflation,” Altenkirch said.

She added that price increases for manufactured goods would remain subdued.

Rate cut hopes

Commenting on Wednesday’s announcement that the Consumer Price Index (CPI) for June slowed to 4.2%, Altenkirch said: “The better-than-expected consumer inflation figure increased the chance that the South African Reserve Bank may decide to cut interest rates at the next meeting, particularly if the rand continues to strengthen.”

Standard Bank economist Shireen Darmalingam said producer price increases picked up substantial pace in June, driven mostly by electricity price hikes as winter tariff pricing kicked in.

“Further additional pressure is likely to be felt from this component in July,” said Darmalingam, who added that Thursday’s data had limited feed-through implications for consumer inflation down the line, and by extension interest rates.

“We maintain that interest rate will remain on hold for the remainder of this year.”

Source: BuaNews