Producer price inflation expected in 2025 to rise despite dipping in February

Prices for finalised manufactured goods in South Africa are expected to tick up during the course of the year in spite of the Producer Price Inflation (PPI) moderating in February.

According to data from Statistics South Africa (Stats SA) on Thursday, the PPI slowed to 1% in February, down from 1.1% in January, and below market forecasts of 1.3% increase.

This comes on the back of cthe headline consumer price inflation remaining stubborn and unchanged at 3.2% in February as it is gradually rising. 

Stats SA said prices slowed down a bit from 4.4% to 4.2% for food products, beverages and tobacco products while metals, machinery, equipment and computing equipment also eased from 1.4% to 1.2% during the month.

A breakdown of the food basket reveals that fruit and vegetable prices decreased from 9.4% to 7.5% year-on-year previously. 

Moreover, decreases were recorded for dairy products, oils and fats, fish and fish products and other food products.

Conversely, meat prices picked up year-on-year from 1.9% to 2.6% in February, while starches and starch products, animal feeds and grain mill products inflation rose to 7.1% from 5.9% previously.   

According to Agbiz, grain-related products remain an upside risk in the first half of 2025 “following a surge in white maize prices in recent months because of the poor crop harvest due to the drought’. 

However, Crop Estimates Committee (CEC) data “paints an encouraging picture of this new season's summer crop production prospects”.   

Non-metallic mineral products; and electrical machinery and communication and metering equipment also contributed positively to the slowing PPI print.

Additionally, decreases were seen for paper and printed products and coke, petroleum, chemical, rubber and plastic products. 

The coke, petroleum, chemical, rubber and plastic products grouping in which fuel price dynamics are measured added 0.3 of a percentage point to the monthly outcome, relative to 0.1 of a percentage point in January.

This was underpinned by the 82c/litre rise in the petrol price and over R1.00/litre increase in the diesel price in that month.

On a monthly basis, producer prices rose by 0.4% in February, after increasing by 0.5% in January and compared with market expectations of a 0.7% advance.

Nedbank economist Crystal Huntley said a gradual uptick in producer inflation was likely in 2025, driven by the normalisation in the base with food and fuel prices taking the lead. 

Huntley said food prices will be affected by fading global disinflation, with further upside from the unfolding trade war which threatens global food prices and the rand. 

“Bouts of load shedding given the vulnerability of power stations will remain an upside risk to input prices. Upward pressure on food prices will, however, be tempered by improvements on the logistical front and favourable crop outcomes thanks to the summer rainfall. Global fuel prices will remain restrained by steady global demand and ample supply, but the vulnerable rand will offset the weakness in the Brent crude oil price,” she said.

“The local unit and other emerging market currencies will likely remain under pressure against a stronger US dollar, which will benefit from heightened risk sentiment stemming from Trump’s administration and the resultant pause in US interest rates. Other risks include higher wage growth and electricity tariffs. We forecast PPI to average around 3.3% in 2025 from 3% in 2024.”

BUSINESS REPORT