Cape Town - The latest Producer Price Index (PPI) released by Statistics SA on Thursday shows that PPI fell to 4.2% year-on-year (y/y) in February from 5.1% y/y in January.
In its PPI report Stats SA said the main contributor to the annual rate of 4.2% was coke, petroleum, chemical, rubber and plastic products.
Investec chief economist Annabel Bishop said PPI inflation fell sharply as rand strength lowered fuel prices, food price deflation occurred and base effects assisted. Specifically, the diesel price fell by 17c/litre in February (contributing -0.2% m/m to PPI.)
"The lag between maize prices and Consumer Price Index (CPI) food price inflation means some further downwards price pressure is likely this year," said Bishop. Grain mill product prices fell 17.2% y/y in February," said Bishop.
"We continue to expect consumer food price inflation will remain in low single digits this year, helping to keep CPI inflation below 5% y/y for the year."
In March a 47c/litre cut occurred on rand strength, which will contribute downward price pressure. However, in April around a 60c/litre hike will occur in the diesel price on the back of the hikes in government taxes and levies announced in the 2018 Budget. Investec expects the oil price to average $66/bbl this year.
"PPI inflation is likely to come out at 3.8% y/y for 2018 as food price inflation remains suppressed, the rand’s previous strength feeds through somewhat further and base effects from 2017’s drought continue to unwind," said Bishop.
She said other commodity prices which placed upwards pressure on the annual PPI inflation rate in February were paper and paper products and non-metallic mineral products.
The annual percentage change in the PPI for intermediate manufactured goods was 0.4% in February 2018 compared with 1.5% in January 2018.
The annual percentage change in the PPI for electricity and water was 3.5% in February 2018 compared with 3% in January 2018.
The annual percentage change in the PPI for mining was -4.3% in February 2018 compared with -0.1% in January 2018.
The annual percentage change in the PPI for agriculture, forestry and fishing was 5.7% in February 2018 compared with 8.7% in January 2018.
* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER