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Producer price pressures becoming more acute – economist

Producer price pressures becoming more acute – economist

Photo by Duane Daw

24th April 2014

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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South African producer price inflation (PPI) again surpassed expectations in March, registering growth of 8.2% year-on-year from the 7.7% recorded in February, climbing to its highest level since February 2012 on the back of rising domestic price pressures, BNP Paribas Cadiz Securities economist Jeffrey Schultz said on Thursday.

With headline prices initially expected to be between 7.7% and 7.8%, it was “clear” that food price pressures at both the factory and farm gate were gaining further traction from sustained rand weakness and elevated global commodity prices.

On a month-on-month basis factory gate prices increased 1.3% in March, with food, beverages and tobacco products contributing 0.7 percentage points, registering a 2% month-on-month rise, and a 2.1% month-on-month rise in coke, petroleum, chemical, rubber and plastic products, with a 0.4 percentage-point contribution.

Manufactured food prices rose to 9.1% year-on-year, while agricultural product prices jumped to 13.1% in March from 8.4% in the prior month.

“We expect this to further filter through into CPI [consumer price index] food prices over the coming months as a result,” said Schultz, adding that further interest rate hikes in 2014 were “inevitable”.

And, while there was “encouraging anecdotal evidence” of a strong harvest from domestic food producers this year, which Schultz believed should help to contain some of the pressures on local grain prices, the “lagged impact” of currency weakness and the sharp rise in maize prices towards the end of last year were likely to “continue filtering through into the PPI numbers”.

Nedbank’s Economic Unit noted that producer inflation would continue to remain elevated in the short term, despite some mitigation from a moderation in the prices of certain commodities owing to slower growth in China.

Edited by Creamer Media Reporter

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