The consistent slowdown in the Producer Price Index (PPI) for intermediate manufactured goods does not augur well for companies operating in the metals and engineering (M&E) sector, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Economist, Marique Kruger, said today.

The Statistics South Africa (Stats SA) data released this morning shows that the annual percentage change in the PPI for intermediate manufactured goods (which serves as a proxy for selling price inflation of companies in the M&E cluster of industries) slowed to 1.7 percent in July 2019, from 4.5 percent in June 2019. The main drivers of the dip in selling prices to the annual rate of 1.7 percent were basic and fabricated metal products, as companies generally struggle to improve capacity utilisation. Similarly, the PPI for final manufactured goods for the broader manufacturing sector also registered a decrease, slowing from 5.8 percent in June 2019 to 4.9 percent in July 2019.

Speaking after the release of the data, Ms Kruger said the underlying driver of volatility in the PPI continues to be a weaker exchange rate, which increased companies’ costs of imported inputs, underpinned by tough business conditions. Moreover, non-descript levels of domestic demand and rising intermediate input costs, compounded by increasing energy and fuel prices, have made it difficult for domestic producers to move stock out of their warehouses.

Given the current challenging economic environment, Ms Kruger said the further slowdown in selling price inflation is disappointing, given the detrimental impacts to businesses in the M&E sector, which are already struggling to improve on declining operational surpluses and profit margins.

“The decreasing trend in the PPI for intermediate manufactured goods, therefore, does not augur well for producers in the M&E cluster, who have less lee-way to pass on cost increases onto the market,” Ms Kruger said.