The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the latest Producer Price Index (PPI) data for intermediate manufactured goods released by Statistics South Africa today, which affirm the gradual improvement in selling price inflation for sub-industries in the metals and engineering (M&E) cluster, SEIFSA Economist Marique Kruger said.
The annual percentage change in the PPI for intermediate manufactured goods, which is measured in factory gate prices, increased from 0,1 percent in April 2018 to 0,2 percent in May 2018. From April 2018 to May 2018, the PPI for intermediate manufactured goods increased by 0,4 percent.
Speaking after the release of the data, Ms Kruger said the increase is consistent with the annual change in the PPI for final manufactured goods, which also improved from 4,4 percent in April 2018 to 4,6 percent in May 2018.
“Given that the headline PPI also captures production costs in manufacturing, the expectation is for the improving trend to have a slight upward knock-on effect on the headline consumer inflation figures to be released next month,” said Ms Kruger.
She said that despite a fairly better business and consumer confidence so far this year when compared to 2017, domestic producers still operate under difficult business conditions. She added that the situation was compounded by low domestic demand and volatility in input costs due to an unpredictable exchange rate and increasing variables costs such as energy and fuel prices.
Ms Kruger said all these factors largely account for a significant increase in selling price inflation in the M&E cluster and are expected to continue to influence the trend in the months to come. She said she was hopeful that the improving PPI for intermediate manufactured goods will provide a significant buffer for businesses, as it is always important to maintain a positive differential in the selling price inflation and input cost inflation to ensure that healthy margins are maintained.
“Similarly, as domestic demand steadily improves, the demand for the intermediate products of the M&E cluster will also improve. SEIFSA, therefore, anticipates continuous improvement in the PPI for intermediate goods index in June 2018,” Ms Kruger concluded.