Producer prices remained in deflationary territory in November as SA’s producer price index (PPI) contracted 0.1% year on year after a 0.7% decline in the previous month.
“This week’s data releases clearly still reflect a very benign inflation picture,” said Elna Moolman, Standard Bank head of SA macroeconomic research, referring to PPI and Wednesday’s report by Stats SA, which shows consumer inflation accelerated mildly to an annualised 2.9% in November, though still below the Reserve Bank’s 3%-6% target range.
Inflation projections are also trending downwards. According to the Bureau for Economic Research (BER), SA households see inflation at 6.6% a year from now, down 0.3 percentage points from a quarter earlier.
The BER’s latest inflation expectations survey found that, on average, analysts, businesspeople and trade union officials expect consumer inflation to stabilise at the Bank’s 4.5% midpoint target and remain near that level until 2026.
“Even in the longer run — the next five years — they foresee inflation practically at the target midpoint,” said the BER.
“This is particularly important for the Bank, as it signals that it is successful in anchoring expectations around the midpoint of its target range,” said Moolman.
Moolman said the generally benign inflation picture “vindicates the Bank’s decision at recent meetings to start cutting interest rates, and also signals that there is scope for the Bank to continue cutting interest rates into 2025”.
On a monthly basis, November’s headline reading was unchanged from October with fuel prices again emerging as a key driver of producer price inflation.
The biggest contribution came from products in the coke, petroleum, chemical, rubber and plastics category, where prices were 8.1% lower than November last year.
The PPI for electricity and water increased by 11.2% year on year in November, with 10.3 percentage points coming from the rising cost of electricity.
Higher electricity prices have consistently emerged as a primary driver of mining input cost inflation this year, and mining PPI increased by 0.2% from the previous month.
Compared to the same period last year, however, PPI in mining was down 0.2%, thanks to lower prices for coal, gas and non-ferrous metal ores.
Increases in producer prices in the agricultural sector resulted in the PPI for agriculture, forestry and fishing increase by 3.6% year on year, up from 3.3% in the previous month.
Update: December 12 2024
This story now contains comment from an economist.
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