26 Jan.
Nedbank Economic Commentary: Producer inflation.
Producer inflation surprised on the downside in December.
- Producer inflation eased further to 9,8% y-o-y in December from 10,1% in November, against consensus forecast for it to remain unchanged.
- Over the month, overall producer prices were steady. Food prices increased further, rising by 2,7% at agricultural level and 1,7% at manufacturing level. However, that was countered by lower commodity process, with mining and quarrying costs falling by 3,7% m-o-m, mainly on the back of a decline in coal prices.
- Producer inflation is likely to ease further in the coming months as the base effect diminishes and commodity prices moderate along with weaker demand, both locally and globally. However, risks to the upside remain, due mainly to higher food prices and growing tensions between the US and Iran in the Gulf region – which could affect the supply of crude oil. This and a weak rand will keep producer inflation elevated.
- Better-than-expected inflation figures for December, at both the retail and wholesale levels, are encouraging. However, inflation will remain elevated in 2012. At the same time, economic activity will remain subdued and uneven, with producers taking strain on the back of a weaker global economy. Consequently, the SARB’s MPC will probably leave interest rates unchanged at current levels until around November.
Comment
Producer inflation eased further to 9,8% y-o-y in December as prices were steady over the month. On a month-on-month basis, prices were mainly driven by food prices, which remained elevated at both agricultural and manufacturing levels.
The 2,7% m-o-m (8% y-o-y) rise of food prices at the agricultural level was mainly attributed to a 5,4% (up by 36,3% y-o-y) increase in the prices of grain and a 2,7% increase in the prices of fruits and nuts (down by 16% y-o-y).
Prices of food at the manufacturing level were driven mainly by meat and meat products as well as fats and oils, which rose by 1% m-o-m (up 22,9% y-o-y) and 1,6% (up 0,6% yo- y) respectively.
Prices of basic metals have also increased sharply over the month, rising by 5,3% (up by 4,9% y-o-y) , reflecting higher prices of basic iron and steel.
In contrast, inflation in the mining and quarrying category eased by 3,7% over the month, containing the annual increase to 10,1% from 14,4% in November. …
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