PPI slows for the seventh month

Producer prices moderated for the seventh consecutive month in February, partly reflecting the easing of oil prices. The annual producer price index (PPI) slowed to 12.2% in February from 12.7% in January.

Producer prices moderated in February for the seventh month running, partly reflecting the easing of oil prices.

Annual producer price index (PPI) slowed to 12.2% in February from 12.7% in January, Stats SA announced on Thursday. The reading was a lot better than the Bloomberg median estimate of a 12.4% rise. On a month-onmonth basis, prices rose 0.6%.

Prices of coke, petroleum, chemical, rubber and plastic products moderated further on an annual basis as did prices of food, beverages and tobacco products. Producer prices are still higher by historical standards, but have eased since peaking at 18% in July 2022.

PPI, which measures changes in prices of goods manufacturers buy and sell, is a key indicator of future consumer inflation, the trends of which the Reserve Bank monitors closely to decide on interest rates.

Producers can absorb input cost increases or pass them onto consumers. Economists expect factory gate prices to normalise off a high base set in 2022, but say a lagged effect of a weaker rand and load-shedding could put pressure on businesses.

Nedbank economists said the moderation in producer prices was encouraging as it would aid the slowdown in consumer inflation. “The downward pressure will stem from base effects and falling commodity prices amid weaker global demand conditions, pushing local fuel and food prices lower. This year’s good rains will also support local crop harvests and prices,” they said in a note. Risks remain to the upside. Blackouts force producers to use diesel to generate electricity, they said.

Investec economist Lara Hodes said food price inflation was sticky due to power cuts.

On Thursday, the Bank hiked the policy rate by 50 basis points to 7.75%, the highest level since May 2009. This brings the cumulative rise to 425bps since it was cut to 3.5% early in the Covid pandemic in 2020.