Johannesburg - Economists on Thursday reacted with shock to higher-than-expected producer inflation data, which climbed to 9.5% year-on-year in October, above expectations, from a 9.4% rise in September.
Statistics South Africa (Stats SA) data showed on Thursday that the PPI rose 1.1% on a monthly basis after September's monthly decrease of 0.7%.
Economists polled by I-Net Bridge had forecast that annual PPI would come in at 9.0%. PPI was at 10.0% a year ago.
Forecasts ranged from 8.8% y/y to 10.0% y/y, with only two of the respondents predicting a rise above last month's level.
T-Sec economist Mike Schussler said "everything is saying that we have higher growth, a huge amount of inflation and that credit extension is still strong".
"We are in a higher inflationary environment and there is no doubt in my mind that we will see higher interest rates in the next few months.
"In a sense, we could say inflation is spiralling out of control."
Russell Lamberti, economist at ETM said the data, together with consumer inflation numbers released on Wednesday, confirms a rate hike in December and if the trend continues like this the possibility of a rate hike early next year is becoming a factor that people are starting to consider.
Absa Bank economist Ridle Markus said the fact that PPI increased 1.1% on a month-on-month basis, means cost pressures continue in the production side of the economy, which continues to put pressure on the retail side. "This confirms our view that interest rates will be hiked in December."
Razia Khan, economist at Standard Chartered Bank, exclaimed: "Help - it just doesn't get any better!"
She said pipeline pressures remain firm and this will seal the case for a December rate hike, with the market increasingly pricing in the possibility of more rate hikes to follow.
"With the domestic component of PPI in particular showing signs of pressure, there is a clear role for monetary policy in helping to curb inflationary pressure.
"Questions are now being asked about whether the SARB will need to tighten by more than 50 basis points in December - however, we do not think that this is the solution. The risks to inflation are still near term, and therefore a degree of gradualism is still required, in order to assess the evidence coming through from the real economy," she said.
Stats SA attributed the increase in PPI to annual increases in the rates of change for agricultural products (from 26.1% to 29.1%), food at manufacturing (from 16.0% to 17.5%), products of petroleum and coal (from 6.4% to 12.8%), wood and wood products (from 10.2% to 12.4%), and mining and quarrying (7.9% to 9.7%).
However, these increases were partially counteracted by decreases in the annual rate of change for tobacco products (13.4% to 6.6%) and rubber and plastic products (from 10.3% to 7.2%), basic metals (8.8% to 5.1%), chemical and chemical products (8.2% to 6.6%), transport equipment (from 4.1% to 2.4%), wearing apparel (3.0% to 2.7%) and radio, TV, and communication equipment (2.3% to 1.2%).
PPI for imported commodities was reported at 7.5% y/y from 8.5% in September.
- I-Net Bridge