According to data released by Stats SA, South Africa's producer price index (PPI) slowed further to 5% year-on-year in August, down from 5.7% in July. This decrease was mainly driven by the coke, petroleum, chemical, rubber, and plastic products component, as well as metals, machinery, equipment, and computing equipment. The PPI measures annual and month-on-month changes in the prices of locally produced commodities.
On a month-on-month basis, the PPI decreased by 0.4% in August, with the main negative contributors being coke, petroleum, chemical, rubber, and plastic products, as well as food products, beverages, and tobacco products. This decline suggests that producer inflation may be easing, but economists warn that input costs, particularly fuel, will likely keep prices high for the rest of the year.
Despite two consecutive annual slowdowns, producer inflation is expected to remain fairly high due to input costs driven by the price of fuel. The ongoing US-Iran conflict has contributed to higher fuel costs, which will likely offset the disinflationary effects of easing food prices. According to Nedbank, other input costs, such as higher electricity tariffs, will also remain elevated and place upward pressure on producer prices.
The PPI data also showed that annual inflation for intermediate manufactured goods was 8.8% in August, down from 9.8% in July. The main drivers of this decrease were basic and fabricated metals, chemicals, rubber, and plastic products, sawmilling and wood, as well as recycling and manufacturing. On a month-on-month basis, the index decreased by 0.6%, pulled down mainly by chemicals, rubber, and plastic products.
The annual percentage change in the PPI for electricity and water ticked up to 7.8% in August, compared with 7.5% in July. However, the index decreased by 1.7% month-on-month. In the mining segment, annual inflation slowed to 7.3% from 9.9% previously, driven by non-ferrous metal ores, gold, and other metal ores. The index retreated 1.1% month-on-month, mostly due to coal and gas, as well as stone quarrying, clay, and diamonds.
In the agriculture, forestry, and fishing sector, the producer price index dipped 1.8% year-on-year in August, after pulling back 4.5% in July. However, the index increased by 0.4% month-on-month. The South African Reserve Bank recently hiked its key policy rate by 25 basis points to 7.25%, warning of upward risks to the inflation outlook.
The Reserve Bank noted that while it had seemed the fuel price shock might be unwinding, it had now intensified. This development may have implications for producer inflation in the coming months. With fuel costs and other input costs remaining elevated, producer prices may continue to face upward pressure, potentially affecting the broader inflation outlook.
Key points
- Producer inflation in South Africa slowed to 5% year-on-year in August.
- Fuel costs are expected to keep producer prices high for the rest of the year.
- The South African Reserve Bank hiked its key policy rate by 25 basis points to 7.25% amid upward risks to the inflation outlook.
