Business Day
*Slowdown in producer inflation 'good news'* *Mariam Isa, Business Day, Johannesburg, 30 April 2012*INFLATION at SA's factories, mines and farms slowed much more sharply than expected last month, adding weight to the view that price pressures in the economy are more benign than expected.
Producer prices rose by 7,2% compared with the year-earlier month, below an 8,3% increase in February and falling short of consensus forecasts for an 8% increase, data from Statistics SA showed on Thursday. It was the lowest rate since May last year.
The figures follow news last month that consumer inflation fell to its lowest level since October last year, sinking to the top of its official 3%-6% target range.
"The producer price figures are definitely a surprise and it's good news for consumers," Standard Bank economist Thabi Leoka said.
"Inflation pressures seem to be coming down. The data give the (Reserve) Bank enough comfort to leave interest rates steady for the rest of this year," Mr Leoka said.
The Reserve Bank has kept its key repo rate on hold at 5,5% --- a 30-year low --- since December 2010.
Economists are divided on the timing of an anticipated interest rate increase, with some predicting it will happen in November and others thinking it will be delayed until the second half of next year.
Producer inflation declined by 0,1% last month compared with February, the data showed. Falls in the prices of agricultural products, minerals and basic metals helped to prompt the monthly decrease.
A sharp slowdown in price increases for food at the manufacturing and agricultural levels contributed to the moderation in the annual inflation rate.
It also stemmed from a slowdown in prices of mining and quarrying products as well as petroleum and coal. "Although inflation remains elevated at production level, cost pressures are easing mainly due to the softer trend in global commodity prices," Nedbank said in a research note. It said producer inflation was set to moderate further this year, partly due to the favourable "base effects" stemming from high levels last year.
"Softer global demand, dragged down by recession in Europe and slower growth in key emerging markets, will contain international commodity prices for much of this year," it said. "However, upside risks remain due to potentially higher food and oil prices as well as a weaker rand later this year."
Nedbank is one of the institutions forecasting a hike in interest rates in November, when it believes a further recovery in the economy will allow the Reserve Bank to take action against high inflation.
A breakdown of the producer price index showed grain prices fell by 3,5% during the month. Raw animal products, mainly meat, fell by 0,6% while fish prices fell by 3,6%. That signals that a declining trend in consumer food prices is likely to continue over the next few months. That is good news for SA's poor majority, who spend most of their income on food.
Consumer food inflation subsided to 8,9% last month from 9,6% in February --- well off a peak of 11,6% recorded in November.
Thursday's figures showed that producer inflation for imported commodities eased to 9,9% last month from 13% in February.
Price increases for exported commodities slipped to 4,6% last month from 5,9% in February.
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