Producer inflation in South Africa is expected to continue moderating after falling nearly to a two-year low in May as local food prices are beginning to match slowing global prices.
Data from Statistics South Africa (StatsSA) yesterday showed that the annual Producer Price Inflation (PPI) eased further to 7.3% year-on-year in May, down from 8.6% in April.
This was the softest reading since August 2021, matching market forecasts.
StatsSA said this was prompted by a slowdown in costs of coke, petroleum, chemical, rubber and plastic products; metals, machinery, equipment and computing equipment; food products, beverages and tobacco products; paper and printed products; and transport equipment.
According to StatsSA, manufactured food price inflation decelerated further in April to 8.8% year-on-year in May, from 11.1% and 11.7% recorded in April and March respectively, with broad based declines across all subcategories except for sugar.
This was the lowest reading recorded since March last year.
A breakdown of the food basket indicates that meat and meat product inflation fell significantly to 1.7% year-on-year from 4.8% in April, while prices of grain mill products, starches and starch products, and animal feeds declined to 15.4% from 19.1%.
Investec economist Lara Hodes said South Africa had not fully benefited from the significant deceleration in global food prices since the country was a price taker for most global agricultural commodity prices.
“The various interventions to ease the load-shedding burden on farmers, such as load curtailment, expansion of the diesel rebate to the food value chain, and, most recently, the launch of the Agro-Energy Fund continue to support the production conditions, however the volatile rand/USD exchange rate remains an upside risk,” Hodes said.
The rand is expected to remain under pressure as global risk appetite see-saws amid the global economic downturn and investors remain wary of South Africa, with the electricity shortage eroding domestic growth prospects, diplomatic tensions simmering on the looming BRICS Summit, and political rhetoric likely hardening ahead of next year’s elections.
On a monthly basis, producer prices went up by 0.6% in May, after being flat in April.
Nedbank economist Crystal Huntley said the faster deceleration in both consumer and producer inflation was encouraging after consumer inflation eased to 6.3% in May.
Huntley said they expected producer prices to moderate even further in the coming months, supported by last year’s higher base and lower international commodity prices.
“This will contain prices of petroleum products, which include diesel and petrol. Food prices have also started easing in line with lower global food prices, and favourable weather earlier this year which has lifted local food supplies.
“However, there is still a risk that inflation could recede at a slower-than-anticipated pace as the benefits of lower global prices will be partly contained by the weaker rand,” Huntley said.
“At the same time, load shedding will continue to drive up local input costs, forcing companies to use diesel generators or incur the expense of installing alternative electricity sources.”
BUSINESS REPORT