29 Jun 2017
PPI update: PPI inflation lifts in May on higher fuel price inflation
PPI inflation lifted slightly in May to 4.8% y/y from 4.6% y/y in April, mainly on account of upward pressure arising from the fuel price component.
Specifically, the contribution to headline PPI inflation from the coke, petroleum, chemical, rubber and plastic products category increased to 1.6% in May from 1.2% previously, arising from growth of 7.2% y/y versus a prior 5.6% y/y. As this category holds the second largest weighting at 21.66%, its price dynamics therefore having a meaningful impact on headline PPI outcomes. Within this category, inflation in the petrol and diesel price components accelerated respectively, to 8.8% y/y from 5.7% y/y and to 12.3% y/y from 9.2% y/y.
This reflects the 49 c/litre and 30 c/litre increases in May in petrol and diesel prices respectively. The recovery in international oil prices has seen local petrol and diesel price growth in year on year terms since November 2016, which has translated to higher contributions of the petroleum component of the basket to headline PPI inflation (see figure 3).
However, the retreat in the oil price from a recent peak of US$57/bbl in December 2016 to US$47/bbl presently has contributed to the petrol and diesel price cuts of 25c/litre and 23c/litre in June. The Department of Energy is currently estimating a substantial petrol price cut of 68c/litre for July. As such, the contributions stemming from the coke, petroleum, chemical, rubber and plastic products category should recede in the coming months.
Although the food products, beverages and tobacco products category, weighted 33.7%, remained the largest contributor to headline PPI, the magnitude of the contribution continued to decline, to 1.9% from 2.1% previously and from a recent peak of 3.9% in August 2016.
Food price growth in particular, decelerated to 5.7% y/y in May from a prior 6.4% y/y. Meat inflation continued to accelerate, to 15.5% y/y in May from a prior 13.7% y/y but the effect was partially countered by ongoing deflation in grains, at -6.5% y/y versus -4.0% previously. Food price disinflation at the agricultural level remained a feature. Subdued food price inflation at the earlier stages of the pricing chain bodes well for food price inflation at the consumer level.
Both PPI and CPI inflation are expected to moderate in 2017, with CPI inflation returning to the 3 – 6% target range. However, the SARB has maintained a cautious policy stance as “risks remain for a further depreciation against the backdrop of continued global and domestic political uncertainty.”