Consumers in South Africa could endure persistent higher prices for goods as manufacturers pass on the costs after producer inflation rose for the first time in August following 12 consecutive months of decline.
Statistics South Africa (StatsSA) said producer price inflation (PPI) accelerated to 4.3% year-on-year in August, up from 2.7% in July.
The August headline PPI print was worse than market expectations of 3.7%.
StatsSA said most of the upward pressure came from the metals, machinery, equipment and computing equipment, food products, beverages and tobacco products, and paper and printed products categories.
Price in the “metals, machinery, equipment and computing equipment” increased by 10.1% year-on-year, accelerating from 9% in July.
The continued rise in this category was probably driven by higher demand for renewable energy equipment as companies and households invest in alternative sources of electricity, combined with a weaker rand and higher production costs.
Inflation in the “food products, beverages and tobacco products” category moderated off a higher base, falling to 4.9% in August from 5.8% in July, as food inflation eased to 5.6% from 6.8%.
The most significant downward pressure came from oils and fats, which fell by 16.6% in August, but the fastest price increase was recorded in sugar, which accelerated sharply by 21.8% from 18.5%.
Prices of paper and printed products rose by 13.4% from 10.6%, also making a higher contribution to PPI.
Inflation in the “coke, petroleum, chemicals, rubber, and plastic products" category, however, continued to fall off a higher base, down to 4.6% in August from 8.3% in July, and dropping for the third consecutive month.
On a monthly basis, StatsSA said producer prices inched up by 1% in August, the most in five months, compared to market forecasts of a 0.5% rise.
Nedbank economist Johannes Khosa said they expected inflation to drift slightly higher in the coming months as the base effect dissipated.
Khosa said the upward pressure would continue to come from higher local input costs, including electricity tariffs, increased use of diesel generators or the expense of installing alternative electricity sources due to persistent load shedding.
“At the same time, the rand remains volatile due to choppy global risk appetites given the uncertain global growth outlook, the threat that US interest rates could stay higher for longer, concerns about the impact of electricity shortages on domestic growth prospects and political rhetoric ahead of next year’s elections,” Khosa said.
“Meanwhile, global oil prices have been rising in recent months due to output reductions by some of the major producers.
“The El Niño weather pattern also poses upside risks for agricultural production and food prices. These could cause food and fuel prices to settle higher than anticipated,” he said.
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