Producer prices quickened to their sharpest levels in more than five years in September, defying market expectations for more muted growth, data released by Stats SA on Thursday showed.
Annual producer price inflation (PPI) for final manufactured goods rose 7.8% in September, its highest level since February 2016, a development that some economists believe will only complicate the outlook for the SA Reserve Bank, as sticky inflationary pressure percolates through an economy that is battling to grow and where demand remains weak.
The increase outstripped the 7.3% median estimate in a Bloomberg survey and, according to Stats SA, was driven by coke, petroleum, chemical, rubber and plastic products; food products, beverages and tobacco products; and metals, machinery, equipment and computing equipment categories.
“A high PPI rate ... has put pressure on the industrial cost base of the [SA] economy, and as producers pass on costs increases to consumers, it has a negative effect on overall inflation rate outlook for the SA economy,” said Chifi Mhango, chief economist for the Don Consultancy Group in a note.
Elevated producer prices have been evident globally as demand for commodities has soared and supply chain bottlenecks continue to bedevil economies as they work to recover from the Covid-19 pandemic.
“We’ve seen elevated PPI numbers around the world,” said Stanlib chief economist Kevin Lings. “This had to start to reflect in SA because we are not immune to a lot of these pressures.”
Countries like China reported double-digit annual PPI for September, a record high since the country’s National Bureau of Statistics began compiling the data, according to a Reuters report.
SA’s latest PPI outcome largely reflected rising energy prices, and food and global price pressures that are now starting to filter into the local economy, said Lings.
‘Storm developing’
“This suggests that this is likely to continue and that producer inflation is likely to remain fairly elevated,” he said.
“I think you have got a little bit of a storm developing around some inflationary pressure,” he said, though it did not reflect domestic demand or local supply disruptions.
September’s print is, however, “another reason the [SA Reserve Bank] will feel more anxious,” said Lings, adding that the result was likely to see more economists shift up their expectations for consumer inflation and to pencil in a 25 basis-point interest rate hike in November, rather than at the beginning of 2022.
The Bank has maintained its preference for consumer price inflation to be anchored at the 4.5% midpoint of its 3%-6% target range.
The third quarter was hit hard by unrest and looting that closed businesses and logistics networks, while the fourth quarter must now contend with aggressive power cuts by utility Eskom.
That the Bank is going to have to tighten rates is clear, but the exact timing of the move is difficult to call, as there are compelling arguments for both raising rates and keeping them on hold, said Lings.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.