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FNB: Signs of food price rise

Aug 30 2012 17:49 Sapa

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Positive July PPI surprise but food a risk

 
Johannesburg - Producer price inflation for July showed a good overall number, but there were signs of a food inflation rise, FNB warned on Thursday.

"Producer price inflation (PPI) trends are often a good indicator of the future direction of consumer price inflation (CPI)," said FNB economist John Loos in a statement.

Although the overall PPI results looked favourable, the early signs of accelerating food prices were visible.

Global food price inflation had risen in rand terms from a low of -0.2% year-on-year (y/y) in February to 21.4% y/y in July.

The surge to date appeared to be due to rand depreciation, but the dollar prices were also starting to show upward momentum.

PPI had declined further from 6.6% y/y in June to 5.4% y/y in July.

This boded well for overall consumer inflation.

Among the key contributors were lower electricity price inflation, and slowing price growth for mining commodities, coal and petroleum products as the global economy lost steam.

But PPI for agricultural foods significantly accelerated y/y, from 4.4% in June to 9.2% in July.

At the same time, the PPI for manufactured foods showed a milder acceleration, from 7.7% to 7.98%.

Food was the biggest single component in the consumer price index (CPI), so food price surges would be noticed in consumer inflation.

In a weak economy - as was currently the case - food price surges might not drive CPI inflation out of control, as other prices were subdued.

However, it would affect poorer people more significantly, as they spent more of their income on food.

The very low expenditure group had a July CPI inflation rate of 6.2% y/y.

This was significantly higher than the inflation rate experienced by the very high expenditure group of 4.6%.

"In these tougher economic times, increases in prices (such as food) that particularly affect the poor can significantly increase the social tensions that exist," he said.

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fnb  |  john loos  |  inflation  |  food prices
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