Inflation on a 'downward trend'

The PPI dipped -0.5% on a monthly basis after September's monthly decrease of -3.5%.

PPI was expected to be at 14.5% y/y, a survey by I-Net Bridge found, with forecasts ranging from 12.1% y/y to 15.4% y/y. PPI was at 9.5% y/y a year ago.

Exports were at 12.9% y/y from 9.7% in September.

Imports were at 10.3% y/y from 19.9% the month before.

Stats SA attributed the rate in October to decreases in the annual rate of change for products of petroleum and coal (31.9% to 24.0%), food at manufacturing (from 19.6% to 15.6%), gas and water (from 8.6% to 7.5%), mining and quarrying (7.2% to 7.0%), wood and wood products (from 12.0% to 6.9%), beverages (4.9% to 4.1%) and agricultural products (0.7% to -3.9%).

These were counteracted by increases in rubber and plastic products (from 17.2% to 21.7%), paper & paper products (from 11.4% to 12.9%), tobacco products (from 4.8% to 12.0%) and furniture (from 5.1% to 6.3%).

The jump into double digits in October 2006 was the first double-digit increase since December 2002.

The annual average for PPI in 2007 was 10.0% from the 7.7% recorded in 2006. The annual average for PPI in 2005 was just 3.1%. PPI was at an average of 0.6% in 2004, 1.7% in 2003 and 14.2% in 2002.

The 2004 average was the lowest since 1959, when there was no change in producer prices. The lowest annual consumer inflation in the post-1945 period was also in 1959 at 1.1%.

New weightings were introduced in the January 2008 data, but with no backdating. The new weightings now also make it difficult to use PPI as a leading indicator of CPI.

The data was in line with analysts' expectations

Nedbank economist Nicky Weimar said: "It's not a bad number. It's moving in the direction that everyone had expected, and it's nice for the interest rates outlook as well. The key factor is probably the lower commodity prices."

Mike Schüssler, economist at T-Sec, said that it is very good news. "This puts the prospect of a rate cut very much at the forefront. While I feel bonds have been overdone, it should be good for the bond market. It will also be good for equities in the long run," he said;

Efficient Group economist Doret Els said: "It's straight in line with what we expected. It shows that we are over the worst regarding inflation. It shows that inflation is now on a downward trend.

"The PPI has reacted more because it has a larger exposure to commodity prices which have come down"

- I-Net Bridge