In May 2011, SA Producer Inflation (PPI) rose by 0.4%m/m, with the annual rate of change moving higher to 6.9%y/y from 6.6%y/y in April 2011. The increase in PPI inflation was slightly below market expectations, which was for an annual increase to 7.1%y/y. The lower than expected monthly increase was mainly due to lower mining commodity prices, including petroleum, coal, and metal ores.
For 2010 as a whole SA PPI inflation averaged 6.0% compared with 0.2% in 2009.
The new definition and measure of PPI, which was introduced in 2008, implied increased volatility month-by-month, given the inclusion of many more commodity prices changes, which are significant in weight. Unfortunately, because of this, the new PPI also has less direct relevance and bearing on the consumer inflation rate.
Agricultural food prices rose by a further 1.7%m/m in May 2011, adding 0.1 of a percentage point to the monthly change in PPI. On an annual basis, agricultural inflation is now up at 4.8%y/y. Similarly, manufactured food inflation rose by 1.4%m/m in May and by 4.8%y/y.
Agricultural inflation as well as processed food inflation is still not reflecting the full impact of the sharply higher international agricultural prices (which are off their peak, but still up over 40% in the past year, in Dollar terms). There are a number of reasons for this, including the relative strength of the Rand, operating margin compression at the producer level and weak consumer activity that makes it more difficult to pass-on large price increases. Nevertheless, it is likely that producer food/agricultural prices will move higher over the coming year.
Other notable increases in PPI inflation during the month included a 2.5%m/m increases in electricity prices (+26.1%y/y), a 1.9%m/m rise in refined petroleum prices (+20.9%y/y), a 1.9%m/m jump in clothing prices (+1.8%y/y), a 2.4%m/m increase in rubber prices (+3.3%y/y), and a 1.5%m/m increase in furniture prices (+8.5%y/y).
Although the PPI basket comprises a very high weight for commodity prices, it is significant to see that SA manufacturing inflation has increased noticeably over the past five months and is currently at 5.7%y/y, well above levels that prevailed in 2010. This could result in some further upward pressure on CPI inflation in the coming months.
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