Figure 1: Food prices at the agriculture and manufactured levels
  • In contrast to market expectations of a moderation in PPI inflation to 4.9% y/y in November from 5.0% y/y previously, the actual outcome showed a lift to 5.1% y/y.
  • The main driver of the higher inflation rate was the increased contribution, of 0.6% from the food products, beverages and tobacco products category, compared to a contribution of 0.5% in October (see figure 3).
  • This category holds the largest weighting in the PPI basket at 33.7% and has experienced steady disinflation to 1.5% y/y in October from the recent peak of 11.3% y/y in October 2016, however in November the rate of inflation in this category lifted slightly to 1.9% y/y.
  • Within this category food price dynamics have been the main driver. Manufactured food price inflation rose to 0.9% y/y in November from 0.4% y/y in October, likely on account of a lift in meat price inflation to 13.5% y/y from 12.6% y/y previously.
  • Part of this effect will have been countered by the ongoing contraction in grain mill products which in turn is linked to deflation earlier in the supply chain. Specifically, grain prices at the agriculture level have contracted throughout the year so far, reflecting the declines in white and yellow maize prices respectively from January 2016 peaks (see figure 4). A record maize harvest in 2016/17 along with the favourable maize supply outlook for the 2017/18 year have supported the decline in maize prices.
  • The coke, petroleum, chemical, rubber and plastic products component, which holds the second largest weighting of 21.66%, made the largest contribution to headline PPI of 2.2%, on an inflation rate of 9.9% y/y in November. This compares to a contribution of 2.4% and inflation rate of 11.2% y/y in October.
  • The slower rate of inflation will have been driven by the lower fuel (petrol and diesel) price increase in November of 27 c/litre, compared to increases of 71 c/litre in October and 108 c/litre in November 2016.
  • Renewed upward fuel price pressures can be expected in December with petrol increasing by 71 c/litre and diesel by 60c/litre.
  • The SARB has assessed the risks to the inflation profile to be to the upside and to include the rand exchange rate, the pace of global monetary policy normalisation and electricity tariffs. In the current environment, interest rates are more likely to increase over the next year whilst the scope for a resumption in policy easing has diminished.
Figure 2: PPI inflation (%)
Figure 3: Contributions to PPI inflation
Figure 4: White and yellow maize prices