Business Report
*PPI falls for fifth month in a row, surprises experts* *Ethel Hazelhurst, Business Report, Johannesburg, 30 April 2012*Inflation data has surprised again on the downside. Statistics SA reported on Thursday that producer price inflation (PPI) fell for the fifth consecutive month to 7.2 percent in March, from a peak of 10.6 percent in October last year. The latest figure was down from 8.3 percent in February and below the 7.95 percent consensus forecast of 12 economists polled by Reuters.
Last month inflation contracted 0.1 percent -- in other words producer prices fell marginally. Elna Moolman, the South Africa economist at Renaissance Capital, said the monthly decrease "appears to have favourable implications for the retail inflation outlook, specifically via meat prices".
The price of live animals fell 5 percent in the month while meat prices at the manufacturing level fell 10.2 percent in the month. Moolman predicted that meat prices would "drift downwards until about the middle of the year" but warned the decline "should be fully reversed by year-end".
She described the meat price fall as "a temporary phenomenon, driven by increased slaughtering". The increased slaughter volumes followed "sharply higher feed costs that became increasingly difficult to pass through at the retail level given consumer resistance".
Jeff Gable, the managing principal for research at Absa Capital, said: "Given the linkages of producer food prices at both the manufactured and agricultural levels into consumer prices and the recent disinflationary trends observed in consumer food in recent months, we are particularly interested in the trends in these two components."
Gable described the producer data as significant "given the current uncertainties related to South Africa's near-term inflation trajectory".
The data followed figures released a week earlier by Stats SA, that showed consumer inflation fell for a second consecutive month last month, to touch the ceiling of the Reserve Bank's 3 percent to 6 percent target range.
The unexpected outcome was down from 6.1 percent in February and a peak of 6.3 percent in January.
Producer inflation moderated last month as the petroleum and coal component of the index, with a weighting of nearly 5 percent, subsided from an annual inflation rate of 25.5 percent in February to 19.1 percent last month.
The picture was also improved as prices of a number of items fell marginally, including basic metals with a weighting of nearly 8 percent.
Nicky Weimar, a senior economist at Nedbank, said: "Cost pressures are easing mainly due to the softer trend in global commodity prices."
Though the Reserve Bank's Monetary Policy Committee would not be comfortable with inflation at current levels, Weimar said, interest rates were likely to remain on hold until November "when continued high inflation and a firmer recovery are expected to force the start of a moderate rise in interest rates".
Moolman noted that the PPI was due to be revised in the middle of this year and "will be completely different from the existing PPI construct. Instead of publishing a single headline PPI for domestic production, Stats SA will publish five PPI series: agriculture, utilities, mining, intermediate manufactured goods (goods used mainly as an input for further manufacturing) and final manufactured goods (those goods mainly used for final demand).
"It should still be possible to aggregate these five series in order to proxy the old PPI series for analytical purposes, although most investment professionals will probably be interested mostly in the PPI for final manufactured goods, which should have a stronger relationship with retail goods prices," she said.
***From: http://www.iol.co.za/business/business-news/ppi-falls-for-fifth-month-in-a-row-surprises-experts-1.1285810*
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