Producer inflation posts surprisingly sharp slowdown

Production inflation posted a surprisingly sharp fall in June — slowing to 4% year on year‚ from 4.8% in May.

Investec and Trading Economics had forecast that the producer price index (PPI) rose 4.6% year on year in June.

Compared with May 2017‚ producer prices fell in June — decreasing 0.3%‚ after rising 0.5% in May from April.

Food and fuel prices were key factors in the headline PPI outcome.

The easing of the drought in most of SA‚ and improved agricultural production as a result‚ has continued to bring down food prices. At 25.17%‚ the food category makes up the largest portion of the PPI.

Food prices rose 4.7% from a year earlier‚ slowing from 5.8% in May.

Grain prices fell 15% in June from a year earlier‚ but meat prices rose 17%. Dairy prices were up 1.9%‚ fruits and vegetables rose 3.6%‚ and fish rose 4.6%. Prices of oils and fats fell 3.4%. Prices in the broader category of meat‚ fish‚ fruit‚ vegetables‚ oils and fats were up 10.2%.

Coal and petroleum products prices were up 2% from a year earlier — slowing sharply from May’s 8.7%.

The main contributors to the annual PPI inflation rate were:

- food products‚ beverages and tobacco products‚ which contributed 1.6 percentage points;

- coke‚ petroleum‚ chemical‚ rubber and plastic products‚ at 0.8 percentage points; and

- wood and paper products‚ at 0.6 percentage points.

Last week‚ Reserve Bank governor Lesetja Kganyago announced that interest rates would be cut by 25 basis points‚ from 7% to 6.75%.

June’s consumer inflation‚ also released last week‚ slowed to 5.1% year on year‚ from 5.4% in May 2017.

If inflation continues to moderate‚ economists expect another cut in rates at the next meeting of the Reserve Bank’s monetary policy committee (MPC).

- BusinessLIVE