After dropping sharply during July, producer price inflation moderated further in August. Prices increased by 0.7% month-on-month (m-o-m), resulting in annual producer inflation falling by 0.3 percentage points (%pts) to 5.1% year-on-year (y-o-y).
Over the month, the largest contribution came from the agriculture category, contributing 0.2 %pts, while the mining and quarrying, products of petroleum and coal as well as manufactured food products categories each added 0.1 %pts to the overall monthly figure. In terms of annual contributions, the categories of electricity (+1.9 %pts), food at manufacturing (+0.5 %pts), products of petroleum and coal (+0.5 %pts) and agriculture (+0.3 %pts) accounted for 3.2 %pts of the year-on-year figure.
Producer prices in the agriculture sector picked up by 3.4% m-o-m, resulting in annual inflation in the sector accelerating from 3.0% y-o-y in July to 4.3% y-o-y in August. Grain prices spiked during July on the back of rising international prices and, even though prices fell by 1.4% m-o-m in August, the elevated prices are starting to filter through to other categories. Inflation in the live animals category registered 5.9% m-o-m in August on the back of a 15.6% rise in the price of yellow maize (used in animal feed) in the preceding two months. Worryingly, rising prices in the agriculture sector were also reflected in prices at the factory gate – inflation in the manufactured meat and meat products category measured 12.3% m-o-m, resulting in annual inflation for manufactured food products accelerating to 9.0% y-o-y from 8.0% y-o-y in August. Falling prices for meat and meat products have been a major driver of the moderation in consumer price inflation over the last six months. However, with international (and local) grain prices projected to remain elevated, inflation in the category is likely to accelerate towards the end of the year, posing an upside risk to consumer prices heading forward.
After falling by 1.1% m-o-m in July, producer prices in the mining and quarrying sector increased by 0.4% m-o-m in August on the back of rising international commodity prices. Continued labour unrest in the platinum and gold sectors following the Marikana incident, combined with the associated Rand depreciation, saw the Rand price of both precious metals increase by 2.8% over the month. As a result, producer inflation in the metal ores category registered 2.4% m-o-m (-1.9% m-o-m in July). Additionally, inflation in the crude petroleum (and natural gas) category measured 4.7% m-o-m as the Rand price of Brent crude oil surged by 11.1% in August. The impact of rising oil prices can also be seen in the agriculture component, where producer prices in the oil seeds category increased by a whopping 9.6% m-o-m (51.8% y-o-y). On a year-on-year basis, producer inflation in the mining and quarrying sector dropped to 1.7% y-o-y in August from 3.8% y-o-y in July.
After falling by 1.5% m-o-m in July, prices for manufactured petroleum and coal products increased by 1.4% m-o-m in August on the back of a 22c/litre increase in the price of petrol. Rising international oil prices saw a further increase of 93c/litre in the local price of petrol in September, suggesting that inflation in the category could accelerate further going forward.
The PPI for imported commodities fell by 1.0% m/m, mainly as a result of monthly declines in import prices in the mining and quarrying and agriculture sectors (-2.8% m/m). As a result, year-on-year inflation dropped sharply to 4.4% y/y in July from 6.6% y/y in June. The PPI for exported commodities rose by 0.1% m/m.
Outlook
Producer price inflation is expected to moderate further in coming months, mainly due to base effects. Upside risks to the outlook continue to emanate from elevated commodity prices. Rising prices for food and oil have more recently been joined by substantial increases in the prices for precious metals on the back of labour unrest in the mining sector. The fact that the unrest has spread to other sectors of the economy, combined with the possibility of substantial wage increases in the wake of negotiations, may result in additional upside pressure on producer prices going forward.