27 Feb 2018

PPI update: PPI inflation moderated in January, primarily on the back of a decline in fuel price inflation

Annabel Bishop

Chief Economist

Figure 1: Food prices at the agriculture and manufactured levels
  • PPI inflation for final manufactured goods fell slightly in January to a rate of 5.1% y/y, from 5.2% y/y in December 2017. This was in line with the consensus forecast. The January PPI update included a reweighting of the basket, but this had a negligible effect on the headline outcome.
  • The manufacturing PMI survey also signalled some moderation in input price pressures in January.
  • The principal driver of the lower year on year inflation rate was the decreased contribution from the coke, petroleum, chemical, rubber and plastic products category, which fell to 2.2% from 2.9% in December. This component holds the second largest weighting in the PPI index at 21% (see figure 3).
  • A decrease in petrol and diesel prices in January of 34c and 22c/litre respectively was predominantly responsible for the slowdown in inflation in this category of the PPI. Fuel price pressure will subside even further in February on the back of cuts in the petrol and diesel price of 30c and 17c/litre respectively.
  • Furthermore fuel prices are expected to drop again in March, currently by 35c/litre for petrol and 47c/litre for diesel. This is as a result of a declining oil price and robust rand. However the increased general fuel price and road accident levy of 52c, announced in the recent budget, which comes into effect on 1 April will put upward pressure on fuel prices and negate some of this relief (see figure 4).
  • Food price inflation moderated in January to 0.0% y/y from 1.0% y/y in December. “This is still on the back of a good harvest in the 2016/17 summer crop production season,” according to Agbiz. Although the 2017/18 maize crop could fall considerably from the previous season according to Agbiz. “From a maize supply perspective, this is not much of a concern as the expected crop is well above South Africa's annual maize consumption of 10.5 million tonnes”.
  • Should this year’s rand appreciation be sustained, it will assist in shielding the economy from imported cost pressures.
Figure 2: PPI inflation (%)
Figure 3: Contributions to PPI inflation
Figure 4: Fuel Tax History (Cost/litre)