PPI increases as anticipated, but still low and won't affect repo rate decision
The Producer Price Index (PPI) for June rose to 0.6% from 0.1% in May, as anticipated. Although economists still view this increase as low, it is not expected to impact the repo rate decision.
PPI measures the average change in prices of goods and services produced by manufacturers and producers. It tracks inflation at the production level, showing how costs are changing for goods before they reach consumers.
Statistics South Africa (Stats SA) released the Index on Thursday, showing PPI increased 0.2% month-on-month.
ALSO READ: Producer Price Index remains unchanged, but an increase is coming
Highest increase in PPI
Professor Waldo Krugell, an economist at the Faculty of Economic and Management Sciences at the North-West University (NWU), told The Citizen that the increase is the highest in four months; however, it is still low.
'The price pressure came mainly from food and beverages and tobacco products that increased by 4%.
'We know that the agriculture sector has struggled with late rains and grain quality issues, there is foot-and-mouth disease (FMD) influencing meat prices, and the bird flu in Brazil is having an impact. Yet, most of this pressure is expected to dissipate in the second half of the year.'
PPI and repo rate
Krugell added that he does not think the PPI is going to influence the South African Reserve Bank (Sarb) Monetary Policy Committee's(MPC) decision on whether to cut the repo rate.
'Inflation is low and stable at the moment, and there is little price pressure on the demand or supply side. They will be worried about international uncertainty, specifically the US tariff wars.'
ALSO READ: Will a repo rate cut make things better for SMEs?
Producer inflation to increase
Nedbank economists predict producer inflation is likely to increase during the second half of the year. They believe food prices will be the key driver, mainly lifted by a low base. However, the outbreak of animal diseases remains a key risk to meat prices.
'The upside in food prices will partly be contained by higher crops following a favourable summer harvest. International oil prices are expected to remain relatively subdued due to weak global demand and ample supply.
'However, geopolitical risks, particularly the conflict in the Middle East and the Russian-Ukrainian war, will continue to threaten the oil price if they disrupt supply channels. A renewed weakening of the rand also presents a significant upside risk to inflation.'
PPI to remain below 3%
Nedbank added that the rand remains vulnerable to global risk sentiment, which could shift dramatically on any escalation in the global trade war and changes in the United States' monetary policy.
'Steep electricity tariffs and other operational costs will also bring upward pressure on prices.
'We forecast PPI to rise but remain subdued below 3% in 2025 before accelerating in 2026.'
NOW READ: A 3% inflation target: What it means for SA markets, and will it solve our debt issues?
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