Producer inflation moderated by more than expected in January, but remained above 10%, with SA manufacturers still grappling with supply-chain disruptions and elevated energy and food prices.
The producer price index (PPI) for final manufactured goods rose 10.1% in January from a record 10.8% in December 2021, and by less than the 10.4% acceleration expected by economists.
Coke, petroleum, chemical, rubber and plastic products increased by 21.5% year on year in January and contributed five percentage points the headline figure, easing from 25.8% year on year in December. This component also contributed five percentage points in December. The unchanged contribution was due to a re-weighting of the index to account for the proportion of producer’s budget that goes to various categories.
Food products, beverages and tobacco products increased by 6.1% year-on-year and contributed 1.6 percentage points, though this is a decrease from the 2.1 percentage points it contributed in December, with the weighting of this category also being updated.
Persistent supply-side bottlenecks and materials shortages triggered by the pandemic continue to weigh on manufacturers, Investec economist Lara Hodes said in a note.
While producer inflation for intermediate manufactured goods eased slightly, it remained elevated at 21% year on year in the first month of 2021.
Month-on-month, PPI increased 0.2%, its slowest pace in 13 months, and at half the pace of the previous month. However, Don Consultancy Group chief economist Chifi Mhango said global production inflationary pressures for production remain high despite the moderation, and will continue to filter through into final costs of consumer goods and services
“In general, transportation bottlenecks, robust demand and labour constraints experienced through 2021 have persisted into 2022, keeping producer price pressures well-elevated,” he said in a note.
“These inflationary pressures in the production pipeline remain intense, and will continue to filter through into final costs of consumer goods and services, thus putting pressure on consumer inflation globally,” he said.
Energy prices remain elevated, with Brent Crude oil topping $100 a barrel for the first time since 2014 on Thursday, as investors grappled with the implications of Russia’s invasion of Ukraine.
Oil prices have now risen by a third so far in 2022, and by 60% over the past 12 months.
This could put pressure on global central banks to bring forward interest rate increases, and there is speculation the US Federal Reserve may opt for a 50 basis point hike at its March meeting.
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