Producer prices jump 2.1% in August on rising food and beverage inflation

South Africa’s annual producer price inflation (PPI) for final manufactured goods quickened to 2.1% in August, up from 1.5% in July, Statistics South Africa (Stats SA) reported on Thursday.

The PPI rose 0.3% on a monthly basis, marking a period of rising inflationary pressures, particularly driven by key sectors such as food products and beverages.

Stats SA said the biggest boost to the headline figure came from food, beverages and tobacco products, which grew 4.3% year-on-year, contributing 1.3 percentage points to overall inflation.

Monthly increases were mainly driven by food, beverages and tobacco, coke, petroleum, chemical, rubber and plastics, and metals, machinery and computing equipment.

The PPI for intermediate manufactured goods climbed to 6.5% y/y in August from 6.4% in July, with basic and fabricated metals providing the largest push. Month-on-month, the index also rose 0.3%, supported by higher chemical, rubber and plastic products as well as basic metals.

For electricity and water, the PPI slowed slightly to 4.6% in August from 4.9% in July, as the index contracted 1.9% m/m.

Stats SA added that the main positive contributors to the monthly rate were chemicals, rubber and plastic products and basic and fabricated metals.

Professor Raymond Parsons, a North-West University Business School economist, said the outcome was in line with expectations that inflation is picking up but remains contained.

“However, many analysts as well as the SA Reserve Bank still see underlying inflation and inflationary expectations as broadly contained for now, with core inflation limited to around 3%,” Parsons said.

“This is well within the present 3%-6% inflation target. Projecting the latest PPI figures therefore still leaves the overall risks to the inflation outlook as balanced.”

Lara Hodes, an economist at Investec, noted that the August increase was slightly ahead of consensus, but flagged that falling fuel prices in September should relieve pressure in the coming month.

Hodes added that a decrease in both petrol and diesel prices in September should, however, add downward pressure to that month’s outcome, supported by a contained global oil price and rand strength.

“The other key driver of producer price inflation, the food products, beverages and tobacco products category, which makes up a substantial share of the PPI basket, added a further 0.1% to the monthly reading after detracting -0.1% previously,” she said.

“International food prices increased month-on-month, while the rand appreciated marginally against the dollar, weighing on imports. Prices within the meat and meat products category remained elevated, increasing slightly to 18.5% from 18.2% in July. According to Agbiz, “slaughtering has now resumed in the major feedlots, although foot and mouth remains an issue.”

Nedbank Group economist, Johannes Khosa, also pointed to higher prices across most food categories, with fruit and vegetables rising from 4% to 4.9%, oils and fats from 0.7% to 1.7%, and bakery products from 1.8% to 2.4%.

“Within food, the rise emanated mainly from meat and meat products, which stayed elevated at 18.5%, reflecting the impact of the foot-and-mouth outbreak. However, grain mill products contracted for the third consecutive month, but the rate of decline moderated from -2.7% to -2.4%. Dairy product prices slowed from 1% to 0.7%,” Khosa said.

“Deflation in petroleum products continued, driven by lower fuel prices on the back of lower global oil prices and a firm rand. The rate of decline in the price of petrol deepened to -7.8% from -7%, but diesel slowed from -7% to -2.8%.”

BUSINESS REPORT