Nedbank: Producer price inflation

29 Sep.

Nedbank Economic Commentary: Producer inflation.

• Producer inflation gained further momentum in August, increasing to 9,6 % y-o-y from 8,9 % y-o-y in July, higher than market expectations of an increase to 9 %.
• The gain was largely attributed to higher prices for food at the agricultural level (up 2,6 % m-o-m) as well as metal prices (up 2,6 % m-o-m).
• Producer inflation is expected to edge up over the coming months, but lower commodity prices in the months ahead as well as subdued global growth are expected to put downward pressure on prices next year.
• Deteriorating economic prospects will make businesses, both locally and abroad, reluctant to invest in additional capacity. This should contain price increases of manufactured goods as well as machinery.
• Producer and consumer inflation will continue to edge higher in the coming months. However, in the short term, the Reserve Bank’s focus will be on how the crisis in the Eurozone develops as well as the health of the global economy, and how this might impact domestic growth prospects. With growth under threat, the MPC will probably opt to keep rates on hold until there is clear evidence of improved growth momentum. Should the global economy slip back into recession a cut in rates may be on the cards. However, for now, we maintain our view of unchanged rates until July 2012. …

See the full Commentary