Nedbank: Producer inflation

15 Dec.

Nedbank Economic Commentary: Producer Price Inflation.

Producer inflation eases to 10,1% in November.

• Producer inflation eased to 10,1% y-o-y in November, down from 10,6% y-o-y in October. The market had expected producer inflation to remain unchanged. Year-onyear increases in commodity prices and beneficiated metal products remain the main drivers of producer inflation.
• Lower commodity prices as well as weakening demand, both locally and abroad, should contain producer price inflation during 2012. However, a key risk comes from the rand, which has weakened steadily in recent months. If the currency continues to depreciate, producer inflation will remain firmly in double-digit territory next year.
• Producer and consumer inflation will remain elevated in the coming months. Although the Reserve Bank will be mindful of adverse developments on the inflation front, the Bank’s focus will be tilted towards how the crisis in the Eurozone continues to unfold, and how this impacts global growth, the functioning of financial markets as well as domestic growth prospects.
• With domestic growth under threat, the Reserve Bank will probably opt to keep interest rates unchanged until the end of 2012, despite the deterioration in the inflation outlook. However, should the global economy slip back into recession a cut in rates may be on the cards.

Comment

Producer inflation eased to 10,1% y-o-y in November, down from 10,6% y-o-y in October. The market had expected producer inflation to remain unchanged. Year-on-year increases in commodity prices and beneficiated metal products remain the main drivers of producer inflation.

Food prices at the agricultural level fell by 0,4% m-o-m, due to a sharp seasonal decline in the price of vegetables (-13,9% m-o-m). However, the price of grain, fruit and nuts as well as other foods rose over the month. Manufactured food prices rose by 0,4% m-o-m, due to modest increases across the board. Food inflation at the manufactured level eased to 8,4% y-o-y, down from 9% in the previous month.

Inflation in the mining and quarrying category remained elevated at 14,4% y-o-y, with the most significant contribution to the increase coming from metal ores. Over the month, this category fell by 0,5%, due to a decline in the price of coal.

Inflation at the manufactured level rose to 6,8% y-o-y, up from 6,1% y-o-y in the previous month. Inflation within this category continues to be driven by food (up 8,4%), chemicals (up 9%) as well as products of petroleum and coal (up 33,1%) and metal products (up 8,4%) …

See the full Commentary