Producer inflation accelerates to 5.2%

Johannesburg – Rising petrol prices fuelled the producer inflation, which rose to 5.2% in September, says an economist.

Statistics South Africa (StatsSA) released the Producer Price Index (PPI) for September on Thursday, month-on-month inflation increased 0.7%. Annual PPI for August was 4.2%.

The main contributors to annual inflation were coke, petroleum, chemical, rubber and plastic with 2.4 percentage points. This was followed by food products, beverages and tobacco products with a contribution of 0.9 of a percentage point and wood and paper products with 0.7 of a percentage point.

Coke, petroleum, chemical, rubber and plastic also made the biggest contribution to the monthly inflation with 0.6 of a percentage point.

“A key influencing factor on this component will have been the substantial 67 and 44c/litre price increases for petrol and diesel respectively in the month of September,” explained Investec economist Kamilla Kaplan.

Kaplan explained that given the revised expectations of the deficit, which is now 4.3% of GDP, compared to the 3.1% Treasury expected in February, the risk of a credit downgrade to junk status is higher.

“Rand weakness will lift inflation which eliminates the scope for any further interest rate cuts in the current cycle,” she said.

Commenting on the mini budget, released by Finance Minister Malusi Gigaba on Wednesday, Old Mutual economist Tinyiko Ngwenya said that a rate cut may not come soon given the rand’s considerable weakening following the speech.

The Reserve Bank wants to see a stable rand and lower inflation in order to cut rates, but now the bank will be considering the second-round effects of a weaker rand and how it will impact inflation, she told Fin24.

Other products

The data showed that inflation for intermediate manufactured goods was only up 2.1% in September, compared to 2% reported in August. The month-on-month change was 0.1%.

Electricity and water inflation was 6% in September compared to 2.6% reported in August. The month-on-month rate fell by 22%.

Agriculture, forestry and fishing inflation was 2% in September, compared to -0.9% in August. Month on-month a change of 2.2% was reported.

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