The further decline in the selling price inflation, for October 2019, is challenging to companies operating in the metals and engineering (M&E) sector, especially amidst the prevailing tough economic environment, which seems to be gradually reducing gains made by businesses over the last few years, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said this morning.

The latest data published by Statistics South Africa (Stats SA) today indicates a further deterioration in the PPI for Intermediate manufactured goods from 0.5 percent in September 2019 to a lower -0.6 percent in October 2019, signalling short-term difficulties in maximizing gains from selling prices for intermediate goods. Correspondingly, the data reflects a dip in the PPI for final manufactured goods from 4.1 percent in September 2019 to a lower 3.0 percent in October 2019.

Speaking after the release of the data, SEIFSA Economist Marique Kruger said factors affecting supply and a weaker exchange rate increased the costs of imported inputs by companies and continue to be the underlying drivers of volatility in the PPI which is considered a proxy for selling price inflation.

“Generally, the mounting input costs pressure to businesses is disconcerting, especially given the current challenging economic environment characterised by weak domestic demand, increasing logistics and energy costs and declining employment numbers.

Resultantly, local companies are compelled to review their individual costs curves in order to stay afloat, and the further dip in selling price inflation starves businesses of an opportunity to enhance sustainability,” Ms Kruger said.

Moreover, she said manufacturers have increasingly found it difficult to pass cost increases on to the market in order to maintain a positive differential between input costs, inflation and selling price inflation.

In conclusion, Ms Kruger said the decrease in the PPI for intermediate manufactured goods, poses more challenges to producers in the M&E cluster, who to some extent cannot recoup losses incurred as a results of volatile input costs, also compounding deteriorating trends in margins.