South Africa’s latest producer price inflation print may have come in lower than expected, but there are still concerns over fuel prices.
According to Stats SA, annual producer price inflation (final manufacturing) decreased from 5.0% in April 2024 to 4.6% in May 2024 – lower than the market’s expectation of 5.0%
PPI looks at inflation from the producer’s perspective before it hits consumers, with a decrease in PPI, which is generally good news for CPI.
The producer price index (PPI) increased by 0. 1% month-on-month in May 2024.
The main contributors to the headline PPI annual inflation were:
- Coke, petroleum, chemical, rubber and plastic products (increased by 7.3% year-on-year and contributed 1.7 percentage points);
- Food products, beverages and tobacco products (increased by 3,8% year-on-year and contributed 1.1 percentage points); and
- Metals, machinery, equipment and computing equipment (increased by 5.5% year-on-year and contributed 0.8 of a percentage point).
The Nedbank Group Economic Unit said that producer inflation will likely moderate in the coming months off a lower base.
The worst of the El Nino (warmer, driver conditions) phenomenon is over, meaning that the upside risk for food prices has moderated.
On the other hand, the delayed impact of the excessive heat earlier in the year, which damaged the summer crop harvest, will affect food prices in the months ahead.
Lower global inflation will still mitigate the upside risks to local food prices.
However, fuel prices and the vulnerable rand remain significant concerns.
“While relatively subdued global demand and ample supply will likely keep oil prices in check over the short term, the ongoing Russia–Ukraine and Israel–Hamas conflicts still pose upside risks,” said Nedgroup’s economists.
Despite these concerns, South Africans should expect to pay less for fuel in July due to the stronger rand and lower global oil prices.
“At the same time, the rand remains vulnerable as the US Fed delays its interest rate cuts. Other operational costs will likely stay elevated.”
“Producers will still be forced to absorb most of the cost pressures as weak consumer spending continues to limit the pass-through.
Read: South African banks are looking good
