Producer inflation slows in March
Easing was helped by fuel and food price dynamics, says economist Lara Hodes
Producer price inflation slowed sharply in March, sliding to a four-month low, in part due to lower fuel prices.
Farm and factory gate prices — as measured by the producer price index (PPI) — rose at a slower 3.3%, down from February’s 4.5%, according to data released by Stats SA on Thursday.
The slowdown comes as SA’s economy, which was already showing flagging demand and shrinking growth, was hit by the economic crisis brought on by the coronavirus pandemic.
The crisis which precipitated a nearly full economic lockdown has also affected the collection and dissemination of statistical information by Stats SA.
The agency has delayed the release of consumer price inflation for April to June 24.
The easing in March’s producer inflation print was helped by fuel and food price dynamics which both hold high weightings in the PPI basket, according to Investec economist Lara Hodes.
The fuel price dynamics were reflected in the coke, petroleum, chemical, rubber and plastic products category, which holds the second largest weighting in the PPI basket at 19.38%, she said in a note
This category’s contribution to overall producer inflation fell to 0.5% in March, from 1.4% in February, she said.
International oil prices — which have slumped amid a marked slowdown in global growth caused by the Covid-19 pandemic — were 60% weaker in March and April compared to the start of the year she said.
Downward pressure on the oil price outweighed the effects of a depreciating rand, with petrol and diesel prices dropping 19c/litre and 54c/litre respectively in March and 188c/litre and 133.7c/litre in April respectively, she noted.
The rand has depreciated almost 20% this year against the dollar.
Food product price inflation also slowed to 3.2% year on year in March from 4.2% in February.
“Subsequently, the contribution from the food products, beverages and tobacco products category, which holds the largest weighting in the PPI basket at 36.28%, dropped to 0.9% in March, from 1.3% in February,” she said.
Despite the lockdown-related measurement problems, consumer price inflationary pressures remain muted, said NKC African Economics analyst Jacques Nel.
“The latest PPI figures suggest this will remain the case over the short term,” he said.
“Input costs have been contained by general economic weakness, and depreciatory pressure on the rand has not yet translated into a marked increase in import prices of these goods”
But he said that inflationary pressures are expected to build towards the end of the year “as favourable base effects start to dissipate”.
Weaker expectations for both inflation and growth, in the face of the pandemic, has seen the SA Reserve Bank slash interest rates by 275 basis points this year — most recently with a 50 bps cut last week.
It is expecting consumer price inflation to average 3.4% in 2020 and 4.4% in both 2021 and 2022.