Producer inflation eases a little, but still elevated
Input costs up 6.4% year on year in May due mainly to rising fuel and food costs
Rising fuel costs maintained pressure on manufacturers’ input costs in May, but inflation is expected to moderate in coming months.
Farm and factory gate inflation, as measured by the annual change in the producer price index (PPI), moderated to 6.4% year on year from April’s 6.5%, Statistics SA said on Thursday.
Coke, petroleum and chemicals added 2.3 percentage points to the headline figure, although rising food costs played their part, adding 1.3 percentage points.
Motorists and businesses were on the receiving end of a fourth fuel-price hike in May, when unleaded petrol rose 54c/l.
Stats SA’s PPI report on Thursday came a week after it reported inflation, as measured by the annual change in the consumer price index (CPI), accelerated slightly to 4.5% year on year in May.
Producer inflation partially foreshadows consumer inflation, s the key benchmark used by the Reserve Bank’s monetary policy committee in setting interest rates. However, the relationship is not perfect, as producers often seek to absorb price pressures to retain market share.
Fortunately, pressure on producer inflation was likely to moderate in coming months, while consumer inflation was likely to be contained through the year, said Nedbank Group Economic Unit economists Dennis Dykes and Busisiwe Radedbe.
Favourable grain production should keep meat prices contained, while fuel prices should also soften, the economists said.
The Automobile Association expects a big fuel price drop in July, saying on Thursday that prices should drop by up to 84c/l next month.
The department of agriculture, forestry & fisheries had on Wednesday once again upped its forecast for SA’s maize production in 2019, a much-needed boost as the sector recovers from drought conditions in 2018.
Although the increased production was positive, the local market may not have fully factored in the effect of difficulties being experienced in US production of maize, and recently soya, said Small Talk Daily’s Anthony Clark.