Inflation pain for businesses in South Africa

Producer Inflation (PPI) has increased, but consumers are unlikely to feel the impact at the tills, economists say.

PPI – a leading indicator for consumer inflation – rose from 5.1% in September to 5.9% in October – in line with market expectations.

Stats SA said that the main contributors to the headline PPI annual inflation rate were:

• coke, petroleum, chemical, rubber and plastic products (increased by 5.8% year-on-year and contributed 1.6 percentage points);

• food products, beverages and tobacco products (increased by 5.0% year-on-year and contributed 1.3 percentage points);

• metals, machinery, equipment and computing equipment (increased by 6.3% year-on-year and contributed 0.9 of a percentage point);

• transport equipment (increased by 5.8% year-on-year and contributed 0.5 of a percentage point

Despite the increase, economists at Nedbank said that they expect producer inflation to ease in November and December 2023 – ending the year at roughly 5% as the impact of temporary shocks declines.

“However, some upward pressures are likely to emerge again in the first half of next year. The most significant risk to the outlook is the uncertainty in the global oil market and the volatile rand,” Nedbank said.

“The upward pressure will also stem from higher local input costs, including electricity tariffs and the expense of sourcing alternative power as load shedding persists.”

“The looming El Niño weather pattern, expected to hit the country in the first quarter of next year, is expected to harm agricultural production and food prices even though some experts in the agriculture sector believe the impact of this weather event will be less severe.”

It added that Transnet is struggling with cargo processing at its ports, creating major backlogs.

If the challenges continue or worse, this could lead to shortages of goods and services – pushing prices up.

“As a result, the risk remains that PPI could settle at higher levels than currently anticipated. However, weaker domestic demand will limit firms’ pricing power, capping the extent to which they can pass cost increases onto consumers,” Nedbank said.

“We forecast producer prices to average 7% in 2023 and accelerate to 7.3% in 2024.”

Read: The big-name billionaires funding South Africa’s opposition