PPI exceeds expectations

Johannesburg - Factory gate inflation in April has exceeded forecasts as the South African economy emerges from the slump.

However, economists don't expect the higher rate of increase in producer prices to have any great impact on consumer prices or to push the Reserve Bank to change its stance on monetary policy.  

"The 5.5% producer inflation reflects an upward cycle; it looks neutral to consumer inflation in the near term," said Chris Hart of Investment Solutions. 

The producer price index (PPI) rose 5.5% in April compared to the same month last year. The latest figure exceeded economists'forecasts of a 4.6% year-on-year (y/y) increase. PPI rose 3.7% y/y in March.

The South African economy was in a state of slow activity this time last year, and year-on-year increases in producer prices should be considered against the low base of 2009.  

On a monthly basis, PPI jumped 1.5% from the month of March to April, compared to a virtually flat reading between February and March.

The key reason for the monthly jump in PPI was April's higher electricity prices, according to Investec Group Economics' Annabel Bishop.

"Electricity is priced differently at different levels of consumption," said Bishop, adding that this increase is habitual and differs from the across-the-board municipality tariff increases taking place in June.  

"During April, the economy used more electricity and this cost had a higher contribution to the overall figure," she said.

Other factors behind the PPI jump include higher commodity prices.

"The PPI is largely being driven by higher commodity prices rather than by the increased cost of inputs at the
manufacturing level," said Nedbank economist Carmen Altenkirch.

Most economists polled by I-Net Bridge said the Reserve Bank is unlikely to change interest rates until next year, unless the economic recovery is significantly below expectations.
 
 - Fin24.com