Producer price inflation moderates for seventh consecutive month

Producer prices moderated for the seventh consecutive month in February, partly reflecting the easing of oil prices. 

The annual producer price index (PPI) slowed to 12.2% in February from 12.7% in January, Stats SA said in a statement on Thursday. The reading was better than the Bloomberg median estimate of a 12.4% increase.

On a month-on-month basis, prices rose 0.6%. 

Prices of coke, petroleum, chemical, rubber and plastic products moderated further on an annual basis during the reporting period, as did prices of food, beverages and tobacco products. 

While producer prices are still higher by historical standards, they have been easing since peaking at 18% in July last year.  

PPI, which measures changes in the prices of goods bought and sold by manufacturers, is considered a key indicator of future consumer inflation, the trends of which the Reserve Bank monitors closely to decide on interest rates.

Producers can either absorb high input cost increases or pass them on to consumers. 

While economists expect factory gate prices to normalise off a high base that was set in 2022, they caution that a lagged effect of a weaker rand and load-shedding could exert pressure on businesses.

Nedbank economists said the moderation in producer prices was encouraging as it would aid the slowdown in consumer inflation in the coming months.

“The downward pressure will stem from base effects and falling commodity prices amid weaker global demand conditions, pushing local fuel and food prices lower. This year’s good rains will also support local crop harvests and prices,” they said in a note.

“However, risks to the outlook remain to the upside. Power shortages are forcing producers to use diesel to generate electricity, lifting already high input costs in most sectors. At the same time, a weak rand will partly offset the benefit from lower global commodity prices.”

Investec economist Lara Hodes said food price inflation continued to be sticky as the result of persistent and heightened load-shedding.

In a surprise move on Thursday, the Reserve Bank hiked the interest rate by 50 basis points to 7.75%, the highest level since May 2009. This brings the cumulative increase to 425bps since it was slashed to 3.5% during the early part of the Covid-19 pandemic in 2020.

Update: March 30 2023
This story has been updated with new information.

mahlangua@businesslive.co.za