Warning signs for inflation in South Africa

Producer price inflation (PPI) has grown, spelling bad news for South African consumers at the tills.

According to Stats SA, September’s headline PPI increased from 4.3% in August to 5.1% in September – slightly worse than the Bloomberg consensus of 5.0%.

The main contributors to the headline PPI annual inflation rate were:

• Food products, beverages and tobacco products (increased by 4.4% year-on-year and contributed 1.1 percentage points);
• Metals, machinery, equipment and computing equipment (increased by 6.5% year-on-year and contributed 1.0 percentage points);
• Paper and printed products (increased by 11.8% year-on-year and contributed 0.9 of a percentage point);
• Transport equipment (increased by 7.8% year-on-year and contributed 0.7 of a percentage point)

On a month-on-month basis, PPI rose by 1.5%.

On a monthly basis, the increase in coke, petroleum, chemical, rubber and plastic products (increased by 5.1% month-on-month and contributed 1.4 percentage points) was the primary source of the increase.

This followed a rise in fuel prices in September amidst a weak rand and high global oil prices, with October’s print likely affected by the most recent fuel price increase.

Food price pain

Although the manufactured food price inflation dropped from 5.6% in August to 4.4% in September, it still contributed 1.1% to the overall number due to its size in the PPI basket.

Meat and meat product inflation increased from 0.2% y/y in August to 1.8% y/y in September, but the prices of grain mill products, starches products, and animal feeds dropped from 3.9% to 2.9% y/y.

“South Africa has benefitted from the deceleration in global food commodity prices, with the Food and Agriculture Organization of the United Nations’ (FAO) food price index down -10.7% in September when compared to the same period in 2022,” Investec Economist Lara Hodes said.

“Moreover, South Africa has a promising agricultural season, according to Agbiz, with the 2022/23 maize harvest projected at 16,4 million. This is “6% higher than the 2021/22 season’s harvest and the second-largest harvest on record.”

“Despite this, a number of upside risks remain, including challenges relating to the Black Sea Grain Deal and India’s rice exports ban, the avian flu outbreak and heightened weather disturbances (notably from El Nino).”

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