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Producer price inflation moderated markedly to 2.8% year on year in August its lowest level since July 2023, from 4.2% in July.
This was much lower than consensus forecasts which predicted factory prices would ease to about 3.5% in August on the back of lower fuel prices.
Stats SA said on Thursday the producer price index (PPI) decreased 0.3% month on month in August due to decreases in the coke, petroleum and chemical, and metals and machinery categories.
“When calculated on an annual basis, [the category in which fuel price dynamics are recorded], which makes up 24.26% of the PPI basket, added a modest 0.5% of a percentage point to the top-line reading from 1.2% points previously. Further fuel cuts were implemented in September which will provide additional reprieve to producers,” Investec economist Lara Hodes said.
The AA said unaudited data from the Central Energy Fund pointed to reductions in fuel prices across the board in October with petrol and diesel prices on track to decrease by more than R1/l. This would mark the fifth consecutive decrease in 2024.
As expected the effect of lower fuel prices was partially offset by an uptick in food inflation — another significant component of the PPI basket.
Manufactured food price inflation, increased slightly from 3.3% year on year in July to 3.4% in August. Accordingly, the food products, beverages and tobacco products category, which makes up a 29.16% share of the PPI index, added 1.1% points to the annual top-line number, from 1% point previously.
“A breakdown of the food basket reveals that inflation within most categories increased year on year. Meat products’ price inflation accelerated to 4.2% from 4.1% previously, dairy prices rose to 1.9% from 1.7% logged in July, while fruit and vegetable price inflation increased to 10.1% from 9.2%,” Hodes said.
Inflation within the grain mill products, starches and starch products, and animal feeds category rose 2.1% year on year from 1% previously as the effect of dry weather conditions on grain crops earlier in the year started to filter through.
Nedbank economists Johannes Khosa and Nicky Weimar said producer prices should remain subdued in the coming months contained by continued global disinflation, a relatively steady rand and more favourable weather conditions. However, there were some upside risks.
“Food inflation will likely edge higher on the lagged impact of the drought earlier this year and fading base effects. The upside here will be partially offset by subdued global food prices and largely favourable climatic conditions,” they said.
The conflict in the Middle East continued to pose upside risks to the fuel price outlook but global oil prices were still expected to recede on the back of ample supply and muted demand.
Consumer inflation fell to 4.4% in August from 4.6% in July which provided impetus for the Reserve Bank’s decision last week to cut the repo rate by 25 basis points to 8%.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Factory prices eased notably in August
Producer price inflation moderated markedly to 2.8% year on year in August its lowest level since July 2023, from 4.2% in July.
This was much lower than consensus forecasts which predicted factory prices would ease to about 3.5% in August on the back of lower fuel prices.
Stats SA said on Thursday the producer price index (PPI) decreased 0.3% month on month in August due to decreases in the coke, petroleum and chemical, and metals and machinery categories.
“When calculated on an annual basis, [the category in which fuel price dynamics are recorded], which makes up 24.26% of the PPI basket, added a modest 0.5% of a percentage point to the top-line reading from 1.2% points previously. Further fuel cuts were implemented in September which will provide additional reprieve to producers,” Investec economist Lara Hodes said.
The AA said unaudited data from the Central Energy Fund pointed to reductions in fuel prices across the board in October with petrol and diesel prices on track to decrease by more than R1/l. This would mark the fifth consecutive decrease in 2024.
As expected the effect of lower fuel prices was partially offset by an uptick in food inflation — another significant component of the PPI basket.
Manufactured food price inflation, increased slightly from 3.3% year on year in July to 3.4% in August. Accordingly, the food products, beverages and tobacco products category, which makes up a 29.16% share of the PPI index, added 1.1% points to the annual top-line number, from 1% point previously.
“A breakdown of the food basket reveals that inflation within most categories increased year on year. Meat products’ price inflation accelerated to 4.2% from 4.1% previously, dairy prices rose to 1.9% from 1.7% logged in July, while fruit and vegetable price inflation increased to 10.1% from 9.2%,” Hodes said.
Inflation within the grain mill products, starches and starch products, and animal feeds category rose 2.1% year on year from 1% previously as the effect of dry weather conditions on grain crops earlier in the year started to filter through.
Nedbank economists Johannes Khosa and Nicky Weimar said producer prices should remain subdued in the coming months contained by continued global disinflation, a relatively steady rand and more favourable weather conditions. However, there were some upside risks.
“Food inflation will likely edge higher on the lagged impact of the drought earlier this year and fading base effects. The upside here will be partially offset by subdued global food prices and largely favourable climatic conditions,” they said.
The conflict in the Middle East continued to pose upside risks to the fuel price outlook but global oil prices were still expected to recede on the back of ample supply and muted demand.
Consumer inflation fell to 4.4% in August from 4.6% in July which provided impetus for the Reserve Bank’s decision last week to cut the repo rate by 25 basis points to 8%.
erasmusd@businesslive.co.za
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