October PPI seen at –3.1% year-on-year

SOUTH Africa's producer price index (PPI) is expected to have registered deflation of –3.1% year-on-year (y/y) in October from the –3.7% y/y seen in September, a survey by I-Net Bridge has found.

Forecasts among the 10 leading economists surveyed ranged from –2.8% y/y to –3.7% y/y.

Excess capacity in several sectors is seen inhibiting growth, but the rand and commodity prices are set to exert some pressure.

"Prices have exhibited stickiness over the past few months," said one of the economists in the survey.

He notes that dollar-denominated food prices are showing slower rates of decline, while rand-oil prices increased 6.5% month-on-month in October.

The annual average for PPI in 2008 was 14.2% from a revised 10.9% (10.0%) in 2007 and from the 7.7% recorded in 2006 and from 3.1% in 2005, and compared with an average of only 0.6% in 2004 and 1.7% in 2003.

The 2004 average was the lowest since 1959, when there was no change in producer prices. The lowest annual consumer inflation in the post-1945 period was also in 1959 at 1.1%.

The producer price index is now based on an updated set of weights, as well as the prices of South African output, whether the output is sold in the domestic market or exported. The reweighting has resulted in the metals, minerals and oil components receiving heavier weightings, which was a big factor behind some of the higher outcomes from May last year.

The data is due to be released by Statistics South Africa tomorrow.