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Annual producer price inflation (final manufacturing) saw a larger-than-expected drop, potentially adding further relief to consumer price inflation.
According to Stats SA, annual producer price inflation – a leading indicator for consumer inflation – dropped from 5.8% in October 2023 to 4.6% in November 2023 – below Bloomberg consensus expectations of 5.1%.
The producer price index (PPI) dropped by 0,6% month-on-month in November 2023.
The biggest contributors to the headline PPI annual inflation rate were:
- food products, beverages and tobacco products (increased by 4.7% year-on-year and contributed 1.2 percentage points);
- metals, machinery, equipment and computing equipment (increased by 6.8% year-on-year and contributed 1.0 percentage point);
- coke, petroleum, chemical, rubber and plastic products (increased by 2.4% year-on-year and contributed 0.7 of a percentage point)
The main contributor to the headline PPI monthly decrease was coke, petroleum, chemical, rubber and plastic products (decreased by 1.8% month-on-month and contributed -0.5 of a percentage point).
Investec Economist Lara Hodes said that petrol and diesel prices of R1.78/litre and 85.08c/litre, respectively, were implemented in November, with the cut in December also offering producers further relief.
“A breakdown of the food basket indicates that meat and meat products inflation decreased to 3.6% y/y from 4.3% y/y recorded at the beginning of the fourth quarter, while prices of grain mill products, starches and starch products, and animal feeds contracted by -1.5% y/y from 0.4% y/y previously,” Hodes said.
‘This is in line with the fall in the Food and Agriculture Organization of the United Nations’ (FAO) cereal price index, which slid by -3.0% m/m and by -19.4% y/y in November.” The Food and Agriculture Organization of the United Nations (FAO) said that this was due to a sharp fall in world maize prices following increased selling in Argentia and seasonally higher supplies from the USA,
However, fruit and vegetable prices increased from 8.1% in October to 10.8% in November, while the price of fish products increased from 6.9% to 7.4%.
Outlook
“Producer inflation is expected to ease again in December and remain subdued in the first half of next year, reflecting stable global oil prices and a firmer rand, which will translate into lower petrol and diesel prices,” the Nedbank Group Economic Unit said.
“Food prices will also start to moderate as the impact of the temporary supply shocks in the poultry industry fades.
“However, there are risks that some upward pressures on producer inflation could emerge again due to the uncertain outlook for the global oil market, the volatile rand and higher local input costs.”
Nedbank’s economists also warned that the looming El Nino weather pattern – which results in drier conditions in Southern Africa – is expected to impact agricultural production, but Agbiz said that the summer crop season will only be mildly impacted.
Transnet has, however, been struggling to process cargo at the world’s ports, causing larger backlogs and clogging up domestic supply chains.
“If this challenge persists or worsens, it could lead to shortages of goods and services, resulting in price spikes,” the Nedbank Group Economic Unit said.
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