Ayanda Shezi

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Classic Business Day Transcript: Producer price inflation up 2.3%

PRODUCER inflation has slowed to slightly better than market expectations, painting a positive picture for inflation and reigniting debate among analysts as to whether another rate cut may be on the cards this year.

Yesterday’s producer inflation figures come on the heels of better-than-expected consumer inflation figures earlier this week.

Most analysts see inflation rising over the coming months, largely due to higher oil prices.

Analysts said they still saw the economy growing at above 4% this year and said a rise in interest rates appeared remote.

However, nor could a rate cut be ruled out at next month’s meeting as the Bank has surprised the markets on two occasions in the past year.

Figures released yesterday show that producer price inflation (PPI) slowed to 2,3% year on year last month, from 2,4% in May, slightly below market expectations of 2,4%.

PPI, which tends to lead consumer inflation by a few months, increased 1,5% month on month, from May to June.

The rand remained largely unchanged at R6,63 to the dollar after the figures were released.

The main contributor to the month-on-month rise in PPI was the jump in electricity tariffs, which rose 43% month on month in June.

The locally produced component rose 1,7% in the month (1,9% year on year), driven mainly by electricity costs.

The index for petroleum and coal products decreased to 11,0% year on year, from 23,9% in May, as fuel prices fell by 17c/l in June.

Prices for imported goods surged 3,4% year on year, and 0,9% during the month.

"The rise in the imported component indicates the strain induced by the somewhat weaker rand and high crude oil prices on imports," Eskom treasury economist Mandla Maleka said.

This could "spur monetary authorities to adopt a cautionary stance", he said.

Higher food prices in the coming months, as grain products begin to rise, could also contribute to a higher overall PPI.

"The ominous risk posed by rising crude oil prices could steadily induce an upward trend in the general price movement," Maleka said.