The increase in the Producer Price Index (PPI) for intermediate manufactured goods in the metals and engineering (M&E) sector is expected to ease the pressure on struggling businesses as demand stagnates despite easing lockdown restrictions, industry organisation Steel and Engineers Industries Federation of Southern Africa (Seifsa) says.
The data released by Statistics South Africa (Stats SA) on August 27 indicates that the yearly percentage change in the PPI for intermediate manufactured goods increased from 1.4% in June to 2.4% in July.
The increase is consistent with the yearly change in the PPI for final manufactured goods, which also increased from 0.5% in June to 1.9% in July.
Seifsa economist Marique Kruger says the increasing selling price inflation means companies now have more leeway to pass cost increases to key players in the market, thereby reducing pressure on margins.
“Businesses are generally struggling and continuous increases in operating costs and erratic energy supply are straining business operations, impacting negatively on their competitiveness.
“The increase in overall selling prices for July is, therefore, encouraging as it allows increased room for companies to manoeuvre. This is especially given that galloping energy costs and fluctuating imports or logistics costs – underpinned by volatile fuel prices and distorted supply chains – have made it difficult for businesses to pass on cost increases to consumers,” she points out.
Instead, companies have resorted to the unsustainable practice of absorbing cost increases that occur within a short space of time in order to retain customers, especially if they had already recently adjusted their selling prices, Kruger adds.
She notes that factors such as the recent reintroduction of load-shedding – which is a significant challenge for energy-intensive M&E industries – and prevailing uncertainty owing to the coronavirus pandemic – even as lockdown restrictions continue to be relaxed – pose major challenges to both industry stakeholders and policy-makers as these may lead to a further slowdown in growth, employment and investment.