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PPI declines marginally in June

Jul 27 2017 12:25

Cape Town – The headline producer price index (PPI) decreased slightly to 4.0% year-on-year in June 2017 compared to 4.8% in May, Statistics South Africa announced on Thursday.

The PPI measures changes in the prices of locally produced commodities.

The PPI for final manufactured goods fell by 0.3% from May 2017 to June 2017, Stats SA said.

The data came on the back of a welcome drop in the consumer price index (CPI), which decreased for the third month in a row in June with the annual CPI falling to 5.1% after a drop to 5.4% in May.

READ: Inflation falls for third month in a row 

The lower inflation trajectory led to a surprise interest rate cut on July 20 - the first downward adjustment in more than a year. 

Contributors to lower PPI 

The main contributors to the PPI drop were food products, beverages and tobacco products (1.6 percentage points), coke, petroleum, chemical, rubber and plastic products (0.8 of a percentage point) and wood and paper products (0.6 of a percentage point).

The main contributor to the monthly drop of 0.3% was coke, petroleum, chemical, rubber and plastic products (-0.3 of a percentage point).

From May 2017 to June 2017 the PPI for intermediate manufactured goods decreased by 0.7%, Stats SA said.

The main contributor to the monthly decrease of 0.7% was basic and fabricated metals (-0.5 of a percentage point).

The annual percentage change in the PPI for electricity and water was 6.2% in June 2017 (compared with 6.4% in May 2017). From May 2017 to June 2017 the PPI for electricity and water rose by 34.6%. The contributor to the monthly increase of 34.6% was electricity (34.5 percentage points).

The annual percentage change in the PPI for mining was -1.5% in June 2017 (compared with -3.0% in May 2017). From May 2017 to June 2017 the PPI for mining increased by 0.1%. The main contributor to the monthly increase of 0.1% was stone quarrying, clay and diamonds (2.9 percentage points).

The annual percentage change in the PPI for agriculture, forestry and fishing was -1.4% in June 2017 (compared with -0.5% in May 2017). The main contributor to the annual rate of -1.4% was agriculture (-2.5 percentage points).

The slowdown in headline producer prices continues to highlight a combination of a stronger trade-weighted rand, lower domestic fuel prices, a record maize harvest and persistently weak domestic demand conditions in the supply-side of the economy, says BNP Paribas economist Jeff Schultz in a company note.

"All of these factors are likely to continue to keep factory-gate prices well contained over the medium-term and feeds into the view for structurally lower underlying inflation in the economy both this year and next." 

Schultz is of the view that in light of these circumstances the SARB could continue to ease policy rates by 25 basis points in both September and November, with the potential for more modest rate cuts in the first half of 2018 should domestic politics and the rand "behave".  

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