Consumer prices could start slowing down in the three months to June after producer price inflation (PPI) in South Africa softened to its lowest in more than one year in March.
This comes as consumer price inflation (CPI) in March remained sticky from 7.0% in February to 7.1% in March, putting food price inflation at a 14-year high of 14.4% year-on-year from 14.0% in February.
Statistics South Africa (Stats SA) on Wednesday said that the annual producer price inflation for final manufacturing eased to 10.6% in March, down from 12.2% in February.
This was below market forecasts of 10.95%, and was the lowest reading since February 2022.
Stats SA said the main contributors to the headline PPI annual inflation rate were coke, petroleum, chemical, rubber and plastic products; food products, beverages and tobacco products.
Nedbank economist Johannes Khosa said the rapid deceleration in producer inflation was comforting after consumer inflation surprised to the upside for two consecutive months.
However, Khosa said the domestic currency and higher food prices posed the biggest risk to the inflation outlook.
“We expect producer inflation to continue trending lower during the year, with most of the downward pressure stemming from lower commodity prices,” Khosa said.
“Food prices are expected to ease on lower global prices and as this year’s good rains support local crop harvests. However, there is a risk that headline inflation could recede at a slower-than-anticipated pace.”
Coke, petroleum, chemical, rubber and plastic products slowed to 12.2% year-on-year down from 16.9% in February, while the downward momentum continued in food inflation.
Food products, beverages and tobacco products slowed to 8.1% from 9.6% in the prior month as food prices fell to 11.7% from 13.7%, reflecting the lagged effect of slowing global prices and higher crop harvests earlier in the year.
This was also a result of petrol prices easing to 6.4% year-on-year from 8%, while diesel fell sharply to 11.1% from 18.5% as they continued to benefit from low global oil prices.
Petroleum-related product price inflation continues to moderate and has come down from a peak of 42.8% year-on-year in July 2022 to 12.2% in March this year.
Investec chief economist Annabel Bishop said the PPI data supported their view of a more modest outcome for CPI inflation from the third quarter of 2023.
Bishop said the March PPI data on food production at the agricultural level showed a large drop as it was also calculated off a high base, but also included some easing cost pressure on the month, with food prices at this level often volatile.
“There is around a month lag between food prices at the production and retail level, and the moderation in agricultural PPI food price inflation should have some suppressing influence on CPI food price inflation,” Bishop said.
“However, whether this impact is overshadowed by other counterbalancing large cost increases will be key for the overall food CPI inflation rate outcome in April, and so the headline CPI inflation reading itself, as many factors have an impact.”
Metals, machinery, equipment and computing equipment; transport equipment; and paper and printed products also accounted for the PPI reading.
Metals, machinery, equipment and computing equipment increased by 9.2% year-on-year, transport equipment experienced a 14.5% increase, while paper and printed products rose by 14.1%.
On a monthly basis, producer prices inched up by 1% in March, the most in eight months, but slightly below market estimates of a 1.4% increase.
The main contributors to the headline PPI monthly increase were coke, petroleum, chemical, rubber and plastic products, which increased by 1.9% month-on-month, and food products, beverages and tobacco products, which increased by 1.0% month-on-month.
FNB senior economist Thanda Sithole also said the PPI should continue moderating, partly assisted by base effects, as well as improving supply chain conditions and softening domestic demand.
“However, monthly price pressures may gain further momentum as the economy incurs the high cost of load shedding and a slightly weaker domestic currency.”
BUSINESS REPORT