Producer price inflation (PPI) slowed for a second straight month in December, reaching the lowest level in five months, according to Stats SA.
The annual decline to 4% in December from 4.6% a month earlier — well below the market forecast of 4.3% — was driven mainly by easing food product prices, which slowed to 4.7% from 5% in November, and paper and printed products, which dropped to 3.5% from 5%.
PPI for electricity and water eased to 15.5% from 16.1%, as electricity tariffs moderated to 16.7% from 17.6%, while water tariffs were steady for a sixth consecutive month at 8.6%.
PPI for mining fell 7.6%, registering a fourth straight month of declines after easing 3.8% in November, driven by non-ferrous metal ores and coal and gas that offset sharp accelerations in gold and other metal ores.
PPI for agriculture, forestry, and fishing eased to 6.8% from 8% thanks a decline in the prices of livestock and other animal products.
Manufactured food price inflation decelerated to 4.7%, from 5% year on year recorded in November.
In 2023, PPI averaged 6.9%, down sharply from 14.3% in 2022. Most of the decline from came from food and fuel prices that were heavily affected by the Russia-Ukraine war in 2022 and intense load-shedding.
Monthly producer prices fell by 0.6% in December the same pace as November and more than the market estimate of a 0.3% decline.
Nedbank senior economist Johannes Khosa expects producer inflation to remain relatively subdued in 2024, averaging “around 6% in 2024”.
“The downward pressure will mainly emanate from Brent crude oil prices, which will be subdued by weak global demand and translate into lower fuel prices,” he said. “Food prices will also start to moderate faster as the impact of the temporary supply shocks in the poultry industry fade.”
However, Khosa said some upward pressures on producer inflation could emerge due to the uncertain outlook for the global oil market, the volatile rand, and higher local input costs.
He said the El Niño weather pattern is also a concern and could still affect agricultural production and food prices, though there isn’t much evidence that planting conditions will be affected this summer.
“Transnet has been struggling with cargo processing at their ports, resulting in increased backlogs and clogging up domestic supply chains. If this challenge persists or worsens, it could lead to shortages of goods and services, resulting in price spikes,” Khosa said.
Investec economist Lara Hodes said that with the global oil price increasing and further upside risks from persistent geopolitical tensions and possible further rand weakness “fuel price hikes are currently building for February”.
There is also “considerable risk” to meat suppliers, Hodes added. “A breakdown of the food basket indicates that meat and meat products inflation increased to 4.1% year on year from 3.6% previously.”
Still, she said that Agbiz had noted that “considerable risk to meat supplies that animal diseases such as avian influenza presented in 2023 could ease this year”.
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