SA faces price shock in 2010

Johannesburg - The up-tick in inflation at the factory gate in November was largely due to base effects, with this turnaround indicative of a shock to come in May and June as even lower bases start to pull the number higher technically and unprecedented energy price increases feed through.

"We expect a large shock to PPI from May/June onwards after the Eskom price hikes. These increases could have much of the same effect on PPI as the basic metal increases (45.3%) in May 2008, especially if one considers the fact that the electricity component of PPI carries an even heavier weight in the PPI basket," said economist from Efficient Group, Merina Willemse.

A source close to the data told I-Net Bridge that the high base of last year had played a big role, especially when it came to the petroleum and coal component. He explained this impact by saying that there was a 12% difference between the y/y components in this category between October and November. Products of petroleum and coal were at -15.8% y/y in November from a sky-high -26.2% y/y the month before.

This number is likely a turnaround signal from the base effects that had set in.

PPI was at 12.6% a year ago in November, but then started to come off the double-digit area by January. It was at 11.0% in December last year and 14.5% in October. It dipped quite quickly from January and struck its first negative print in May at -3.0%.

South Africa's producer price index (PPI) registered deflation of -1.2% year-on-year (y/y) in November from -3.3% y/y in October, Statistics South Africa (Stats SA) data on Thursday showed.

The PPI increased 0.8% on a monthly basis after October's monthly decrease of 0.1%.

The PPI was expected to have decreased at 1.9% y/y according to a survey of 10 leading economists by I-Net Bridge, with forecasts ranging from -2.7% to -1.0% y/y.

Exports were at -11.9% y/y from -13.1% in October.

Imports were at -5.7% y/y from -10.2% the month before.

Stats SA attributed the higher rate in November compared with October to increases in products of petroleum and coal (from -26.2% to -15.8%), mining and quarrying (-6.1% to -0.7%), agricultural products (-0.7% to +0.9%), forestry (-14.1% to -9.0%) and basic metals (-13.4% to -12.5%).

These were counteracted by a decrease in transport (+1.5% to +0.8%).

PPI has been in negative territory for seven months running now, but won't be doing so for too much longer. Tellingly, the local bond market was better offered soon after the PPI print came through, with the benchmark R157 yielding 8.415% before the data and then bid weaker at 8.435% soon after.

- I-Net Bridge