Hard on the heels of Wednesday’s announcement that consumer price increases moderated to their lowest in 2024, Thursday’s factory prices update from Stats SA provided more proof that inflation is heading in a direction that could support a decision by the Reserve Bank to start cutting rates this year.
Annual producer price inflation for June was 4.6%, unchanged from May and slightly ahead of the Bloomberg consensus forecast of 4.5%. However, the month-on-month producer price index (PPI) reading decreased by 0.3%, according to Stats SA.
Producer price inflation has decreased markedly from 2023’s average of 6.7%, and is forecast to average close to 4% in 2024, partly because of petrol and diesel price cuts in recent months.
The fuel price dropped from a high of about R25.15/l in May to R22.86/l in July and another small drop in prices has been forecast for August, which would provide further relief for producers.
“The latest price data confirms that SA’s overall inflation outlook has improved, helped along by lower fuel prices but also because of weak domestic demand in general and for manufactured goods in particular,” said Jee-A van der Linde, a senior economist at Oxford Economics.
Headline inflation rates were expected to drift marginally lower in the coming months because of lower fuel prices, favourable base effects and sluggish domestic demand, he added.
A key driver of producer price inflation, said Investec economist Lara Hodes, was an increase in the prices of manufactured food products, which rose to 4% year on year from 3.7% in May.
“The food products, beverages and tobacco products category, which makes up a substantial 29% of the PPI, added 1.2 percentage points to the annual top-line number, from 1.1 points previously,” she said.
A breakdown of the food basket indicates that annual inflation for meat and meat products accelerated to 4.9% from 4.1% previously, while inflation within the grain mill products category quickened to 5.1% from 4.6%.
Grain and meat products were also responsible for some of the upward inflation pressure seen in the food basket tracked for consumer inflation. Grain prices have increased in 2024 due to drought-related crop damages in SA’s main maize-producing regions.
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