PPI continues decline

Johannesburg - South Africa's producer price index (PPI) registered deflation of 3.0% year-on-year (y/y) in May from inflation of 2.9% y/y in April, Statistics South Africa (Stats SA) data on Thursday showed. This is the ninth consecutive decrease in the producer price inflation headline number.

The PPI decreased 1.1% on a monthly basis after April's monthly decrease of 0.2%.

The PPI was expected to have decreased at 2.0% y/y according to a survey of leading economists by I-Net Bridge, with forecasts ranging from -1.2% to -3.7% y/y. PPI was at an elevated 16.4% a year ago.

Economists say that it is a positive development. Efficient Group economist Fanie Joubert says, "It's more than the market consensus. This confirms that on the producer side, prices are in a deflationary environment for the first time since 2003.

"It's a positive development, but we must remember that it's coming from a very high base created in the first of 2008."

Carmen Altenkirch, economist at Nedbank says: "Today's producer inflation data is extremely encouraging. The high base established in 2008 combined with falling domestic and international demand should keep producer price inflation in negative territory for much of the remainder of this year.

Investec's Annabel Bishop says: "PPI inflation came out much lower than expected, recording the first month of deflation since December 2003.

"We continue to believe the Sarb will cut interest rates by 50bp today and 50bp in August. The release of the Q2.09 GDP figures are likely to show the economy contracted by more than the authorities expect, we forecast a Q2.09 figure of -4.2% qqsaa, if not closer to -5.0% qqsaa.