The main driver behind the moderation in PPI inflation continued to be food price dynamics, with this category comprising the largest portion of PPI at 25.17%.


The contribution to headline y/y PPI inflation of the food products, beverages and tobacco products, decreased to 2.1% from a prior 2.2%, with manufactured food prices receding to 6.4% y/y from 6.9% y/y in March.


Food price inflation at the agriculture level contracted for the fourth consecutive month, by 3.4% y/y versus -6.1% y/y in March, with grain prices in particular contracting by 31.2% y/y. This reflects the 66.3% and 54.5% declines in white and yellow maize prices respectively from January 2016 peaks (see figure 3). Expectations of bumper maize harvest on favourable weather conditions have suppressed maize prices.


Manufactured meat price inflation rose further to 13.7% y/y from an average of 11.8% y/y in Q1.17. Looking ahead, Agbiz has assessed that “the beef supply side seems to be normalising – which means that the price increase will not be as significant as initially expected.” Moreover, Agbiz noted that local poultry production is recovering which also suggests more contained price increases.


Overall, it would appear that the food price outlook along the supply chain is broadly favourable from the perspective of retail prices at the consumer level.


In terms of other consideration for producer prices, commodity prices in rand terms, at an aggregate level have moderated. Specifically, the continuous commodity price index that comprises energy, agriculture, soft commodities and metals, is presently down 17.7% y/y (see figure 4).


In April, the coke, petroleum, chemical, rubber and plastic products category, which holds the second largest weighting after the food category, made a smaller contribution to headline PPI of 1.2% versus 2.2% in March. On a month to month basis, both petrol and diesel prices decreased by 24c/litre and 10.5c/litre respectively in April.


Both PPI and CPI inflation are expected to moderate in 2017, with CPI inflation returning to the 3 – 6% target range. However, the SARB is likely to maintain a cautious policy stance with the rand flagged as an upside risk to the inflation outlook.