Picture: SYDNEY SESHIBEDI
Picture: SYDNEY SESHIBEDI

Another substantial drop in fuel prices in January translated into a far sharper slowdown in producer inflation than economists had expected for a second consecutive month.

Farm and factory gate inflation, as measured by the annual change in the producer price index (PPI), decelerated to 4.1% in January from December’s 5.2%.

This is the lowest price since March 2018.

After showing inflation of more than 6% year on year since July 2018, the PPI eased to 5.2% year on year in December 2018 as fuel prices tumbled.

The economists’ consensus, according to a poll by Trading Economics, was that producer inflation would slow to about 4.9%.

Inflation in January was aided by a R1.22/l drop in petrol and R1.54/l drop in diesel on the continued moderation in international oil prices and a stronger rand.

Petrol fell to 3.9% from a year before and 9.1% from December 2018, while diesel rose 2% from January 2018 and fell 10.7% from December.

The food component was up 2.2%, on higher prices for grains and starches, which were up 7.4% and 12.9%, respectively. There was, however, a 6.1% decrease in meat prices.

Statistics 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), slowed more than expected to 4% in January from 4.5% in December.

The annual change in CPI swings less wildly than in PPI due to an economics phenomenon known as “price stickiness”. Retailers tend to resist sharp price increases to keep their customers happy, and try to average out the seasonal rises and falls in commodity prices.

The relatively contained inflation outlook and the weak economy will convince the Reserve Bank to keep interest rates unchanged at the next meetings of the monetary policy committee (MPC) in March, according to analysts.

However, fuel price increases are forecast for March as a result of the weaker rand and rising oil price, as well as a 20c/l increase in the fuel levy in April, which will drive inflation slightly higher.

“The reality is that multiple increases to taxes, levies and tolls will have a cumulative effect. Consumers who are already struggling to make ends meet in our fragile economy will be even more hard-pressed now,” the Automobile Association (AA) said.

Petrol is expected to go up by 73c/l while diesel is likely to rise 92c.

Despite this, producer prices are forecast to remain relatively contained for most of this year, Nedbank economist Busisiwe Radebe said.

menons@businesslive.co.za