In April 2010, SA Producer Inflation (PPI) rose by a substantial 1.5%m/m, with the annual rate of change moving up sharply to 5.5%y/y from 3.7%y/y in March 2010. The monthly rise was well above market expectations, which was for a more modest increase of around 0.4%y/y.
The sharp rise in PPI during April 2010 was mainly as a result of electricity (+7.7%m/m) charges as well as the cost of the various mining products including crude petroleum (+2.6%m/m), and metal ores (+6.2%m/m). In contrast, coal prices fell by 4.5%m/m.
The new definition and measure of PPI, which was introduced in 2008, does imply increased volatility month-by-month given the inclusion of many more commodity prices changes, which are significant in weight. Unfortunately, because of this the new PPI also has less direct relevance and bearing on the consumer inflation rate.
During April agricultural food prices fell by 0.2%, with the annual rate of change reflecting a decline of 3.2%y/y. Manufactured food inflation rose by 0.2%m/m in April, but is still down 1.7% relatively to a year-ago. Agriculture and produce food inflation remain extremely, which should help to keep consumer inflation well under control over the coming months. Consumer food inflation has moderated noticeably in the past six months to a mere 0.3%y/y.
PPI has been below 6% for 14 consecutive months. However, PPI inflation is expected to continue to move higher during 2010, mostly due to base effects, higher commodity prices and some currency weakness. In addition, the further significant rise in electricity prices, and higher wage demands represents significant upward risk for producer inflation, although given the still weakish domestic demand conditions, many companies will have to absorb some of the higher energy and wage costs through margin compression.
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