Factory gate prices tick up

Johannesburg - Statistics South Africa said on Thursday producer price inflation, which represents domestic output, ticked up to 10.6% year-on-year (y/y) in October from 10.5% in September.

The market was expecting the producer price index (PPI) to accelerate to 11.0% y/y and 0.05% on a monthly basis.

Gina Schoeman, senior economist at Absa Capital, said the figure was lower than forecast.

“It came in lower than our expectations and the consensus estimate and I think at first glance that makes everyone feel a little bit better, given that consumer inflation has been surprising to the upside.

“But unfortunately when you look within the data you see that the only reason for this downward surprise was because electricity tariffs moved from winter to summer pricing.
 
“If you take this electricity tariffs shift out of the picture you see that we’re still getting price pressures from agriculture which would be food prices, from petroleum which would be oil prices and then of course a broad-based mix between other manufacturers and all other groups within the basket."

The consumer price index rose to 6.0% y/y in October compared with October, but its link with PPI, which is dominated by commodities, has been weakened.

Statistics South Africa plans sweeping changes to PPI that will make it a more relevant indicator for consumer prices from 2013.
 
The central bank has left its repo rate unchanged at 5.5% so far this year, after reducing it by 650 basis points in the two years to end-2010.